CHART UPDATE : A pause that refreshes?
Another great week for gold and gold stocks. But the question now is where do we go from here? I think we should review some of the important charts for some ideas. We have to bear in mind that the bull market we have seen in gold stocks has been two tiered. The unhedged golds represented by the HUI have been in bull market. The hedged golds and other minerals (precious or otherwise) represented by theXAU have been firm but have not participated very much in the bull. The price of gold last made a high since the lows of * at on and it is in a different situation.
Here are long term charts of each:
.
Long term XAU
bigcharts.marketwatch.com
As you can see this index has undergone a long period of consolidation and appears to have broken out of an its triangle formation with tops at 2002 highs and the early 2003 highs at about 80. It is trading at about 92 which is at or near the 1999 highs. This breakout of a triangle formation projects to 115, so it appears there is more upside. Also, the chart is a classic consolidation base and appears to be able to support much higher prices. There has been some discussion of a head and shoulders bottom on the long term chart but I am having trouble seeing it.
HUI Long term
bigcharts.marketwatch.com
Of course this chart is much more extended than the XAU and therefore more vulnerable to a correction. It is trading at about 1 95. In spite of that my analysis from my last post is still valid and I repeat it here:
“As you can see from the chart, which goes back to 1996, a huge up slanting (most bullish type) head and shoulders bottom has completed.
The left shoulder was completed between 1998 and 1999, the bottom of the head is the low in late 2000 and the right shoulder was completed in mid to early 2002. I can’t draw in the neckline but if you can imagine a line drawn from the completion of the shoulder which is the high in 1999 through the to the neck of the right shoulder which is the high in mid to early 2002, that is called the neckline. Then measure up from the bottom of the head in late 2002 to neckline and that is the first step in measuring the extent of the move. Based on my charts at home my best estimate of the number is 86, I may have posted a different number earlier, but I think this is more accurate. THE BREAKOUT OCCURRED AT 180 TO WHICH 86 IS ADDED FOR AN HUI TARGET OF 266. This is my assessment of where HUI is headed. The time frame is an issue but ask yourself where the gold stocks we are following will be if the HUI goes to 266. Of course I can’t guarantee that this will happen, but so far nothing in my technical work suggests otherwise to me and I intend to go with this analysis until something in the technicals suggests otherwise.”
In addition there is the breakout of the ascending triangle the tops of which are formed by the two tops in 2002 at about 150. THESE PROJECT TO A TARGET OF 210.
So it looks to me like there is still upside left here.
Now lets look at a long term chart of gold itself and see what it tells us.
stockcharts.com[m,a]waclyyay[df][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
As you can see gold has clearly broken out of its triangle formation the top line of which is the 385 (approximate) in early 2003 and the 375 high in mid 2003. This projects to a price of 420. A review of this chart shows that gold is not overextended in the least and that the chart is a classic consolidation formation in the early stages of an uptrend.
I remain convinced that this bull is just beginning and not just ending. That is not to say that we will not be getting corrections along the way or that you do not need to watch those stocks of yours that have gone vertical.
I tried something a little different this week. I have reviewed all fifteen components of the HUI to see how these stocks are doing on an individual basis. What I found was that there are negative divergences in many of the momentum indicators, which have been alluded to on SI. I have found in my own trading that these indicators such as RSI, %R, stochastics, etc. work fairly well in a trading range but not all that well in strongly trending markets.
One of the most often forgotten principals of technical analysis is that the most important indicator is price. If it is moving against the trend of any other indicator follow price, you can’t go wrong. Another important point is that strong trends are hard to reverse and trading against the trend is destructive to your portfolio.
My analysis on an individual basis of the HUI component stocks, is that they break down into 2 categories. Those that have broken out to new highs, NEM,FCX,CDE,BGO, HL,GSS,GOLD,GLG and IAG and those that are in or below overhead resistance, which are GFI, AEM,KGC, MDG GG and HMY. Also Friday’s close on almost all of these stocks was pathetic. The bottom line is that the breakout stocks are due for a correction and the other stocks have some overhead resistance to work through. This means we could have a correction this week as the breakout stocks normally do correct after a breakout and the stocks that have overhead resistance will likely have some difficulty moving through it.. If that correction is short and shallow it will be an indication that gold stocks have a long way to go, if it is longer and deeper than we may be later in this bull than I think. NEED TO KEEP WATCHING AND CHALLENGING MY ASSUMPTIONS AT ALL TIMES.
HUI components.
Newmont- (NEM)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Glamis (GLG)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Gold Fields (GFI)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Freeport McMoran (FCX)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Couer d’alene (CDE)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Bema Gold (BGO)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Hecla (HL)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Golden Star (GSS)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Randgold (GOLD)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
stockcharts.com[m,a]daclyyay[da][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Glamis (GLG)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Agnico Eagle (AEM)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Meridian Gold (MDG)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Iamgold (IAG)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Kinross (KGC)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Goldcorp (GG)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Harmony (HMY)
stockcharts.com[m,a]dahlyyay[dd][pb50!b200][vc60][iUb14!La12,26,9]&pref=G
Following are two articles that I think are very importaant
John Murphy’s article on CRB
“Rising CRB is bad for Bonds”
gold-eagle.com
“Where Do We Go From Here”
gold-eagle.com
Good ideas for exit strategy
“Stocks are well ahead of the metals and its time we start to develop an exit strategy. I am going to implement a 10% trailing stop in all of my stocks once we reach US $380.00 in the price of physical gold. I will tighten this up to 7% when physical gold reaches US $392.50 and then I will give it a final turn of the screw to 4% when gold touches $405.00. After that it's up to the market to throw me out. If we get lucky and keep on going up into the stratosphere, that would be great. And if we don't, well that's fine too because I made my money. One thing I won't do is liquidate just because we have a big move up. Just because something is overvalued doesn't mean we have to sell it. As the NASDAQ taught us, the sky is the limit when it comes to overvaluing a stock. As long as the market is acting fine, I am more than willing to let my profits run.”
CONCLUSION
It is extremely difficult for me to look at the XAU, HUI and Gold charts and conclude that there is a high risk of reversal at these levels. I continue to maintain that this is the infancy of the bull, most likely we are better than ½ through the first leg of a multi-year bull. BUT BEAR IN MIND THAT THERE WILL BE SHARP AND SEVERE CORRECTIONS ALONG THE WAY.
Live long and prosper,
Little joe |
