Today there is some turbulence. Good, an extended rally scenario would not want to see the sector fly up to excessively over bought levels all in one big gulp. HUI is only moderately over bought.
By breaking the consolidation handle in the first half of this week HUI has now established the 220 +/- area as the first key support level, replacing the former 210 +/-. That’s progress folks and if (there is surely no guarantee) this support is to be tested the ‘grinding bottom’ scenario would be well in place.
HUI is bullish and until such time as it takes out an important support level (ref: 210 and now 220), pullbacks are healthy. The above is provided as reference for profit takers, would-be buyers, hedgers and regular old holders.
There are definitely nominal technical parameters we are watching for the health of the precious metals rally, jagged, nerve wracking thing that it is. The HUI Gold Ratio is however, just fine as it sits now. Barely budging off recent bullish action.
In fact, if it clears the 200 day moving averages, some momentum could finally get into the sector.  Okay, so it’s GDX-GLD. Same diff…
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.