In light of a shifting global macro backdrop that we can finally sink our teeth into with respect to a bullish orientation on the gold stock sector, I thought it might be a good idea to publicly post some bottom line thoughts from this week’s NFTRH report.
The report went into great detail to explain why more fundamentals that matter are starting to come in line, after the chart below refused to make a signal against our big picture view of global economic contraction, which has been the biggest key for the counter-cyclical gold mining sector.
During the worst of the gold sector cyclical bear market we used Gold vs. Commodities to gauge a higher low to the 2011 low, which despite perceptions of the time, kept our longest-term macro view intact (as noted to subscribers several times, if Au-CCI had broken down we’d have had to admit that the view had failed, no if’s and’s or but’s).
The moving averages have triggered, a higher low has been made and the long-term thesis is being confirmed.
Hence, a bullish stance on quality gold mining operations (a unique counter-cyclical sector) has finally come about and the relevance of this chart of HUI vs. the S&P 500 now means more than simply one market crashing in terms of the other. It means RISK vs. REWARD is on the side of the counter-cyclical gold mining industry vs. the cyclical broad US stock market.
The last post was a little perspective on gold over the long-term. This post calls attention to a post at NFTRH where the writer pops off a bit on the gold bears in light of today’s… what ever it is. Festivities?
I would normally be pretty cautious about a short-covering event like this, but coming off of a gold-negative hype event as it did, driving silver down to the low-end depths of my 14-16 target in pre-market, I find it notable.
Anyway, the post linked above goes into the need to use not only technicals in the gold sector, but importantly sector and macro fundamentals along with other indicators. You don’t friggin’ chart in a vacuum! Especially in the precious metals.
I swear this sector is filled with hyperbole both from the Pom Pom brigade and their evil twins managing what has become an ‘everybody knows’ situation with respect to how bearish gold is. Just ask that weirdo, Willem Buiter over at Citi.
During a week that has had a little bit of everything, the gold stock sector has refused to give up the December 2013 lows (not shown on these charts) and are still hanging around with a potential to put in a short-term bottom*.
GDX smashed its head right up against resistance (May low) on the big FOMC Minutes pump fest, but has turned MACD up and got RSI looking constructive above its EMA 50.
GDXJ looks better with respect to the May low, but these items are dealing with the EMA 10’s as a very short-term resistance point.
* I almost purposely don’t write too much about the gold stocks because it seems that too many people are still way too interested in this sector to the exclusion of so much else going on in the macro markets and that rubs me the wrong way. People should by now know to treat these things as nothing more than speculations until the macro gets right, fundamentally.
Well, the headlines are rightfully bearish for gold, silver and the major precious metals stock indexes, ETFs and senior gold miners. The technical damage is real. Today’s burst could be and probably is just short covering. [edit; post was mostly written before the end of day flop]
But improbably enough, there is a stealth uptrend going on in certain royalties, miners, developers and explorers. Believe me, if you could hear me talk instead of write you would not hear anything resembling desperation in my tone. That is because I have worked hard during this bear market to manage risk, stay strong and out of the bear’s way. So I am not talking any sort of a book here other than my biggest picture view (an economic contraction environment that ultimately benefits the counter cyclical gold sector), which could still be out on the horizon.
Don’t take my word for it, here’s Investopedia’s definition of an uptrend:
“Describes the price movement of a financial asset when the overall direction is upward. A formal uptrend is when each successive peak and trough is higher than the ones found earlier in the trend.”
Complicated it’s not.
The following charts are what they are (in up trends), and considering that legions of gold bugs have now sworn off the promoters and puked up gold for good, the time is nearing that this sector will again be investment worthy. At the very least, NFTRH for one is going to point out positives along with the ample negatives. Just so we keep a level playing field and an unbiased viewpoint.
The gold and silver Commitments of Traders data are out and what do you know, they improved again. Lot of good it has done precious metals investors thus far, but maybe next time people will take seriously those times when the goons are gathering short while at the same time the promoters are popping off about Ukraine, Chinese demand and Indian Wedding Season.
Yup, improved a gain. A lot of good it did precious metals bulls today, but we can bet that the goons covered shorts again today (data are only through Tuesday) and I would assume speculators continued to puke. Got to play the game folks, in the casino at least. This has nothing what so ever to do with real physical gold. Note the open interest on silver; that is in line with the power of today’s thumpage. A coming low in these metals should be very interesting. Click the graphics to de-minify them.
Here’s the weekly HUI chart grappling with the key parameters we noted yeseterday. Frankly, I don’t care which way it breaks * because I have been practicing what I have been preaching, which is patience, discipline and positioning for strength.
* Well I do care insofar as some good people have gotten hurt by following some not so good peoples’ faulty analysis, but you get the point.
I want to show you the weekly chart of HUI that NFTRH has been using along with monthly and daily charts for much of the last year. The dailies controlled the short-term and kept us aware (and out of harm’s way) that a breakdown was very possible, even likely, during the Ukraine noise over the summer. The monthly gives other parameters that you can see if you click the Big Pic HUI, Au & Ag link above.
The weekly however, has guided NFTRH subscribers with Mr. Green and Mr. Red, otherwise known as the green uptrend channel and red downtrend channel. Mr. Red scored a blow to Mr. Green’s gut when the sector rightfully dropped as the Ukraine hype wore off *, leaving it with little more than its incomplete (at best) fundamentals. Now it is Mr. Green’s turn. He needs to defend himself by defending the 205 to 210 zone.
We have been noting consistently in NFTRH that the more times something tests support the more it is likely to fail. That’s just the way it usually goes. In spite of that I bought ‘bounce’ Calls yesterday and felt the sector has a good chance of bouncing. Then I got a Hammer in the evening and proceeded to taunt the shorts with it. Today? Right back to Palookaville.
They sure don’t make it easy. Hammers can be followed up with an iffy or bearish day and manifest bullish the next day. Or they can just crap out and fail. But as of now I am still on the trade even as SLV makes a 4th support test I never wanted to see in the first place.
[edit; make a couple posts taunting the shorts and the metals are down again the next morning. Yeh, sounds about right] If I had a ha-amm-er… I’d hammer in the morning… I’d hammer in the evening… all over this la-a-and. Isn’t that how that 60’s song went? Well SLV has a gap down to scare everyone out and a Hammer at the end of the day. I feel okay about my calls because I have a Hammer. I feel better about it then I did when I bought them this morning because at end of day I have a Hammer. It’s a start anyway.
SLV has now officially destroyed whatever that hype was that drove it too fast (nominally and in relation to gold) in June. And it did so on volume. Going the other way, check out DSLV sporting the Hammer’s opposite, a bearish Shooting Star.
Insert here all the usual disclaimers about confirmations needed and TA (especially candlestick work) is just a probabilities tool, not a refined science. But I have a Hammer and that’s something.
There is a lot more to the technical picture as we noted in this morning’s NFTRH update, but as the update with the good, the bad and the ugly concluded… “I would not be surprised if today or tomorrow brings a capitulation to a bounce at least.”
Here is Junior Miner Short JDST painting its 2nd bearish engulfing candle in 2 days. Couldn’t happen to a nicer bunch of guys. Hashtag: #Reamed (for 2 out of the last 3 days and maybe more).