"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, May 15, 2012

Risk Aversion Money Flows Drop the HUI

The mining sector was weak to start the session even as some larger entities were attempting to force the S&P futures above the 1350 level. The problem was that gold could not move into the plus column, the Dollar was not buying the concerted push nor were the bond and note markets which refused to go negative on the day even with stocks initially rallying.

Once the S&P dropped back below the unchanged level, that was it for the mining sector shares which are now getting what looks to me like the BEGINNING of a final washout in this sector.

Note that the critical 50% Fibonacci retracement level could not stem the bleeding as the index has not yet even registered a mere bounce higher. One can almost sense the disgust and dismay that pervades this sector at the time being. While the economic world is being rocked, the proverbial safe haven of gold is being shunned in favor of.... Yep - US Treasuries here and German Bunds over in Europe. Apparently promises to pay by overstrained governments are more valuable than the ancient metal of kings in this Brave New World.

I am sending up a monthly chart once again to provide a long term view of this sector with some key technical regions noted. If we base our analysis PURELY on Technical factors, there does not seem to be anything in the way of downside support until one nears the 340 level which is the 61.8% Fibonacci retracement level of the entire rally from the low hit in 2008. if that cannot stop this rout, then the upsloping trend line (in blue) drawn off the pitchfork is the next target - that is currently near the 300 level.

An extreme and unlikely target can be calculated by looking at the 2008 drop which took 70% off the value of the index in the matter of a few months time. If, and this is a WORST CASE SCENARIO, the monetary authorities sit on their hands and do absolutely nothing to reverse the course of the broader US (and global) equity markets, a similar erosion in value would drop the index to near the 185 level. Let's hope it does not come to that extreme. Again, I do not think this is at all likely - I only mention it as the bottom of last resort. For this to occur, the S&P 500 would have to literally implode and the notion that the Bernanke-led Fed would sit on its hands and do nothing while this occurs, sending the terrified citizenry flushing their stock holdings down the toilet is inconceivable to me.

The last chart is the US Dollar Index which is bumping up against a key overhead resistance level near 82. It has not been able to mount a WEEKLY CLOSE above this level since August of 2010.