This essay is based on the Market Alert and the Premium Update posted on January 26th and 27th, 2010
This week's free commentary is based on what we've sent to our Subscribers yesterday in the form of a Market Alert. It (along with the following Premium Update) included comments on many markets, but in this essay we will focus on precious metals stocks. Let's begin with a long-term chart of the HUI Index (charts courtesy of http://stockcharts.com.)
Much of what we wrote in the previous Premium Update regarding the long-term HUI chart is still relevant. We wrote the following:
Please take a look at the thin blue lines coming from the same price/time combination. Each of them was pierced, before the final bottom was put in, and this is what I expect to take place this time.
(...) taking the historical performance of the gold stock sector into account, it seems that PMs will need to move a little lower before putting in a bottom.
The bottom is likely to be accompanied by the RSI Indicator just above the 30 level.
This is exactly what we have seen today - the RSI is very close to the 30 level (blue horizontal line on the above chart), and HUI has broken below the rising support line just like it was the case in the past before the bottom was formed.
Consequently, the HUI Index appears oversold, and it is likely that the bottom will be formed soon. Still, it does not mean that the bottom is in, as prices may go from oversold to even more oversold in the short run.
Two of the following points that we made yesterday were that the GDX ETF has just touched its 200-day moving average and that the GDX ETF has moved VERY close to the lower border of the declining trend channel and the price that stopped the decline in early October 2009. Let's take a look at the short-term chart for details.
The short-term chart confirms that the GDX ETF is currently very close to the bottoming area (that we've drawn 2 weeks ago), which means that one may want to get ready to buy as far as the speculative capital is concerned.
Volume does not provide us with a clear "the bottom is in" signal. During the last two days the volume has been lower than in the previous three days, but it is not extremely low to suggest that there is hardly any selling pressure on the market.
The next thing that we mentioned in the last Market Alert was the GDX:SPY ratio (used to measure outperformance of PM stocks relative to other stocks) that reached a strong support level. Please take a look at the following chart for details.
Tops and bottoms in the above ratio tend to correspond to tops and bottoms in the PM sector, so analyzing it often confirms (or invalidates) points made while analyzing other charts. This time the ratio has just hit a long-term support level, which suggests that the bottom in PMs is very close, or that we have just seen it. Please note that not only did the ratio itself reach a support level, but the RSI indicator is also flashing a "buy" signal.
Before summarizing, we would like to provide you with the description of one more of the points made in the recent Market Alert. We wrote that our unique indicators (available in the Premium Charts section) have flashed buy/extreme signal. You will find one of these charts below.
The SP Short Term Gold Stock Bottom Indicator has turned up while being under the dashed line, which is when it flashes a buy signal. Please note that in the past several months this signal has been very reliable.
Summing up, signals coming from the precious metals stocks suggest that the bottom is in or is very close. However, given the current level of globalization in the economy and financial markets, one must keep in mind that no market moves alone - they are connected in this or the other way. From time to time realizing this fact makes us get additional confirmations from markets that one would normally ignore. This time, however, we get a "caution warranted" signal from other markets, and we don't think that one should totally ignore it. Among other things covered in this week's Premium Update (4x bigger than this essay with many detailed charts; available to Subscribers), we focus on the risk that the plunge in the main stock indices poses to PM Investors and Speculators.
To make sure that you are notified once the new features (like the newly introduced Free Charts section) are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.
Thank you for reading. Have a great and profitable week!