We have been working a theme lately about the mania going on in US stocks (some valuations are not overly manic but policy sure is) and also the one going on in the mirror (a fun house mirror at that) in the ugly precious metals sector.
We are in a time of utter reverence for great and powerful Oz-like people doing not so great things to the rates of interest that would be paid to savers and prudent people (Zero Interest Rate Policy or ZIRP), and doing wonderful things for leverage (substance) users, speculators and asset owners (MBS and long-term T bond buying).
A quick update on the status of the weekly view of HUI and its projected ‘W’ or ‘IHS’ bottom as noted in this week’s letter.
But first, to review the daily situation, HUI made its first close above the resistance at 230 (as noted in an update last week by a daily chart). The next important task is to take out the 50 day moving averages, which are currently 234.55 (EMA) and 241.50 (SMA).
Looking at the big picture monthly view of the Russell 2000 small cap index, I seize upon an opportunity to once again highlight the worst target I ever put out there. I own it, not so proudly, but own it none the less. That would be HUI 888, based on a long-since failed pattern on HUI in 2009-2010 that was very similar to the successful one currently zooming toward target (measurement is roughly 1350) on the Russell 2000.
HUI spent a year grinding in new highs territory but ultimately failed support. Since then it has been all risk management for 2012 and 2013.
If nothing else, RUT’s performance might (might, mind you) indicate that I am not crazy and that massive patterns like those shaded above do indeed have upside measurements. Whether they hold support and succeed is a different matter. HUI did not, and RUT did. That is the reality.
So, HUI is in a bear market and it is up to shorter time frame management to gauge when that might end. But the interesting play here is the broad market, led by RUT. That looks like a giant 5th wave up and don’t they say 5th waves are the strongest? Currently, I have cyclical bull market termination sometime in early to mid 2014. RUT is a leader and it has a clear measured target.
It’s not a prediction, as the HUI one was not a prediction. RUT has a target, which should at the least be considered by bears. I wonder what kind of shorting opportunity will finally come about when this thing does top out, though.
I don’t believe today’s precious metals bounce is anything because we are talking about a market that is fixating on scrambling politicians and what ever scheme they will cook up to extend the nation’s ‘Wimpy’ lifestyle… “I’ll gladly pay you on Tuesday for a Hamburger today.”
In this week’s letter it was mentioned that a safer buy point on the gold stocks (as represented by the HUI index) would be with a DAILY chart move above the 50 day moving averages and a MACD up-trigger.
It was also mentioned that bottom feeders like myself would probably not wait for such a signal before taking a try on select positions. While I am 100% cash in the speculative portfolio, any bounce attempt that takes place above the 217 parameter is one that I want to watch. Hence the micro view of HUI using a 60 minute chart:
The chart says it all; 217.25 is the line in the sand to the series of higher highs and higher lows out of the June bottom. I may take a try on some quality positions (as represented in the model portfolio) today. These might be the likes of RGLD, SLW, AG, etc.
The general ‘stop loss’ on such a move would be the 217 parameter. Again, I must stress that the daily chart signals are negative and people who value comfort and longer term positioning should probably wait for a confirmation that the 217 low is going to hold. After all, any real rally would have much more upside beyond the 50 day moving averages.
Posting may be lighter than usual today as I have got some non-market related things to attend to.
I’ll be the first to admit that I thought this might have been a bear flag on Huey. It made sense that there could be a post-FOMC freak out. So I was prepared for some negatives mentally, as all the while NFTRH has been scouting 217 as a critical support (keeping a series of higher lows intact) to the still unbroken rally off of the June low.
HUI crashed support a couple days ago and needs to get over 230 again to get clear.
In yesterday’s NFTRH update we noted several leaders of relative quality that had not crashed support, however. This is a positive indication. Another thing we noted when the HUI was losing support on Tuesday was that silver maintained its leadership role over gold on that big precious metals down day. Today that continues.
The weekly chart of HUI was noted in NFTRH recently for its MACD cross over, which needs confirmation, but like last summer, is a good first signal of a bottom.
All in all, considering today’s impulsiveness and the regular market’s potential bull trap reversal, I’d say things are on track. It is the big macro changes I am interested in. Not mature trends.
We’ll sure track Huey’s progress each week in the letter and by updates. All the other stuff too, like T bonds, stock market, etc.