"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


Wednesday, March 6, 2013

Strong Finish to HUI

After what must no doubt seem a near eternity to many, there is finally a sign of life in the mining sector. A BULLISH ENGULFING pattern appeared on the daily chart today. This is a pattern that is generally valid after a prolonged downtrend. It also is much more reliable if overall volume is good. So far we have both ingredients in place judging from some of the actual miners today.

There are two things I am looking for at this point. First - I want to see this index close strong on FRiday of this week and not puke out over the next two days. Second - I would also like to see it push through 370 on a weekly closing basis within another week or so.

Aggressive traders/investors can wade into the water on select shares PROVIDED that they use sound money management techniques. That means this - if this week's low gets violated - GET OUT. Don't stand around arguing why the market needs to go up. GET OUT! You can always get right back in if the market action subsequently dictates it is okay to do so.

Longer range, more conservative oriented investors would probably want to see that weekly close above the 370 level to prove that this is anything more than a dead cat bounce and actually has some legs to it. One day wonders are becoming way too frequent nowadays due to the nature of computer algorithmic trading so some confirmation is warranted for those who like to see some follow through before making a move.

I am noting that the indicator has turned higher from an extremely oversold level but it has not yet generated a buy signal. The index will need to add to today's gains to trip it into a buy mode. Also, I like to look at previous peaks in the indicator to see if those can be bettered. Remember, a trend that has been a long time in the making is sort of like a gigantic cruise ship. It takes a while to turn. The same sellers who have been pushing these shares relentlessly lower will be looking for a place, a level, at which they can sell any rally UNLESS THE MARKET PROVES THAT THE TREND HAS TURNED.

Keep that in mind...

HUI to Gold Ratio exceeds Nov. 2008 low then bounces

The ratio briefly dropped below the low made back in November of 2008 before bouncing higher in today's session. It came very close to matching the October 2008 low. It could be that we have gotten the answer to our question posed previously whether the gold shares would need to move lower against the price of bullion before the HUI would finally bottom out. I want to see a bit more subsequent action to feel that has been confirmed.

By the way, I will try to provide a CLOSING chart of this later on today if my schedule permits.

As far as the actual index itself goes, it ran to within a point or so of the 61.8% Fibonacci Retracement level noted on the monthly chart before attracting what seems to be at this point a significant amount of buying. I want to take a look at some of the actual stocks that comprise this index to get a better sense of whether this is a one day wonder or is the long-awaited selling climax. Again, that will need to await the close of trading today and also how these things behave tomorrow. The weekly close is also going to take on a great deal of significance given the extent of the price decline in this sector, particularly against the backdrop of an upside runaway in the broader equities.

Note that the technical indicator has surpassed the 2008 low in regards to its oversold reading. It is back to levels last seen in 2001, TWELVE YEARS AGO!

Incidentally, gold itself is stronger in terms of all of the major currencies today; Canadian Dollar, Swiss Franc, Euro and Yen. It is basically holding steady against the Aussie which is vascillating up and down today against the US Dollar. This is coming on the heels of a stronger Dollar which is noteworthy. In observing the price action in the metal today it looked as if the bears were gunning for downside stops below $1570. They didn't reach them!

 I was suprised at the ferocity of the rebound off that level as it reversed quite sharply to the upside around 8:45 AM CST on strong volume. Somone either covered in large size or some new buying came in. I am not sure which it was right now but the volume was big. I would like to see the metal close out a pit session trade this week ABOVE $1587 or so. That would make some of the Johnnie-come-lately gold bears extremely nervous. It will still take a closing push or good intraday push through $1600 to confirm a near term bottom. That would also need confirmation by the HUI.