In February of 2013 we noted the big fat HEAD on the HUI’s massive H&S pattern. It was reviewed again in April of 2013 after it broke the neckline in a very bearish move. Mr. Fat Head’s technical objective was and is 100.
Why is this being revisited? Because I have gotten a couple emails noting that it is showing up again out there amidst the very bearish backdrop. If anything, if every gold bug on the planet is planning for 100, the ingredient is in place for this final indignity that they are so well prepared for, to maybe not happen.
But a target is a target and it is there for a reason; namely that its source – Mr. Fat Head in this case – has not been eliminated from the picture. Here he is updated…
There are other considerations…
With its position well below the ‘205 parameter’, I am not trying to look for positives because that was below our tolerance to begin with. When the Ukraine hype failed as expected our targets were 220, 210 and finally 205 respectively to keep things in order. They are all history.
Gold stocks are down again today and it is now decision time (for the sector if not individuals). That is because the parameter is to not make and hold a new low to the May low on a closing basis. We noted that a bounce is possible and if it is going to happen it should happen around here, at the May low with a similar over sold RSI. Either that or it would be broken with a lower low (that does not reverse quickly).
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.
NFTRH had a 220 to 225 measurement for many weeks. Here is the updated chart from a public post last week, which showed the 220 area measured as a would-be target. Well it would have been and it was. Complicating matters, a new and logical downside target was illustrated this weekend that can be registered even if one assumes HUI is still in a potential big picture bottoming stance. This came into play after Huey failed to get above a weekly trend line that we have been monitoring.
So in speaking about those possible in-month jabs down below the neckline noted in the previous post, here is what I have been thinking (and writing about in NFTRH) since the geopolitical hype peaked out. If support around 235 is lost Huey measures to around 220, which is the low end of the downside target we have had in operation for many weeks now.
There are worse things that could happen than filling a gap and scattering the wrong kind of gold bugs back out. Then it would be up to the longer-term charts to do the heavy lifting if the daily does fulfill this downside potential.
Here is the monthly view of HUI…
Here’s a blow up of the same chart…
Never mind the Andrews Fork. Those are goofy and subjective. But the long-term trend line is still holding. HUI can lose that line and stab down through it in-month. But given the symmetry of the pattern, Huey will need to close September in bull mode. That means no more monthly closes below the line. Okay Huey?
In the previous post about ‘Gold Miners & Inflation’ it was mentioned that the 2013-2014 would-be bottoming grind in HUI has been almost exactly the duration of the 2010-2011 topping grind. Here is a visual to put with that statement.
The current yellow box is an exact duplicate of the 2010/11 box, which came with an over bought MACD crossed down. The breakdown candle implies that September would be the month that a break UP candle comes into play if this relationship has any predictive power.
Taking it further, as also noted in the previous post, the Ukraine noise does not help the sector and indeed could hurt in the short-term, because it keeps the wrong gold bugs on the tout. So NFTRH keeps open some minor downside targets.
Taking it further still, those downside targets would end up being buying opportunities if gold’s macro fundamentals start to improve, which despite the emails I get to the contrary, really has not happened yet beyond a few ongoing positives. But it had not happened yet in 2000 either.
Outside of the sound practice that is physical gold ownership in a time of monetary gamesmanship, the precious metals sector is all about speculation, at least according to 9 out of 10 chart jockeys and momentum junkies micro managing every short-term twist and turn.
Indeed, NFTRH manages gold, silver and the gold stocks on down to the short-term views as well, but that is only because the long-term views have stated that this is a time to be paying attention. Do we pay attention because we have waited so long to promote our orthodoxy and finally be right as gold bugs? No. We pay attention when a chart tells us to pay attention.
While we manage the shorter-term views (both macro fundamental and technical) rigorously in the weekly report and interim updates, here I’d like to dial out to the big monthly picture with 3 large (click to expand as needed) charts of HUI, Gold and Silver to see their stories, which are the reasons we are managing shorter-term views.
HUI Gold Bugs Index
First HUI monthly reviews the warnings to the analysis from 2012 and 2013. They were very clear and should have kept people out of much of harm’s way with respect to gold stock speculation.
Way #1 sees the HUI Gold Ratio (HGR) below the lateral breakout line (neckline interpretation #1).
Way #2 sees it breaking neckline interpretation #2 this week.
What’s it mean? Why, gold stocks have been stronger than gold for 2.5 months now! It also means that a break above the red line would be very bullish and there is already some bullish stuff going on with this chart (ref. the panel indicators and the positive divergence to price in December and their 0+ and 50+ status).
AROON is a party pooper as it turned down due to the time this ratio – like so many other aspects of the precious metals complex – has taken taken in slogging through its potential bottoming process.