In September, the HUI went down to the 200 dMA, which it also did at the end of July.
The question I have for this correction is, are we going down to the 50dMA or to the 200dMA?
If the former then we correct to 132, otherwise to 119.
Since the 200dMA turned up in February of 2001 we have corrected back down to this moving average four times.
If we draw a line of support it suggests a testing down to 119. If we don't go immediately down but slowly correct for the next four weeks we may only test 125. If we look at the ratio of $hui:$gold:
stockcharts.com[h,a]daclyyay[pb20!b50!f][vc60][iUb14!La12,26,9]&pref=G
this ratio is actually quite comparable at this present peak and in September 2002. If the ratio of HUI:GOLD declines in a like manner to September it suggests a bottom on the HUI of 120.
At the same time the decline of the dollar is much more constructive for the HUI than it was in the previous year or even in September. This suggests that we won't go down that far.
Don Coxe in last Friday's conference call stated something that was very telling for me. BTW, I do recommend that you listen to it in its entirety. The point however, that I would like to make is he observes that the dollar is not acting as the safe haven against socio-political disruption that it has in the past. The crises in Korea and and the Middle East, have not led to a flight to quality in either the dollar or the Treasury Bond, rather it has lead to a flight to gold. This is the sign of a new attitude displayed by investors around the world and suggests that the dollar may no longer represent the currency of last resort or indeed a safe haven for money.
As a result, I have begun to increase my investment in pm stocks by selling out of the money puts of one month's duration (February), so that at worst, i will collect the time value of these stocks and if there is a real correction, I will be put the shares. My strategy today was to use the support line to define a price that I would be willing to pay for the shares and sell puts with strike prices that allow me to buy in at the support level price when the premium is subtracted from the strike price. I hope that is not too confusing.
In addition I tried to sell calls on some of my holdings at the peak but for the most part the bids didn't get executed.
So where do I place my bets? I haven't been able to load up on PM stocks since I rebought my core position this fall because the corrections did not really amount to much.
So, happy trading.
Ro |
