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Gold Stock Breakout No Surprise

HUI Weekly Chart

An excerpt pulled from NFTRH142, dated June 26, 2011 follows. This was a time when the now overtly bullish gold stock sector was not so overtly bullish and goldbug spirits were at a low point:

"It remains possible that HUI may register a lower RSI reading than the 'Bingo' level [41-42 level noted, which was the RSI low, in hindsight] noted last week on the chart [chart to the left is not the original]. But in clearing out all of the noise I look at the chart and see epic support, with the potential for a decline to the long-standing 470 +/- level, and even the chance for a quick washout decline all the way down to the low 400's.

I also see a massive structure that could be construed as a Cup (early 2008 to early 2011) and Handle (forming currently) with, you guessed it, the 3 Snowmen (+) [the 3 Snowmen is NFTRH-speak for the minimum upside target - think about it] as its target. I look at the segment above and see indisputable evidence that gold mining fundamentals are much improved from the time of the 2008 wash out, and with no crystal ball, I put the sum of the analysis into a big pot, stir it up and decide to hold a core of quality gold stocks, with risk management as appropriate, into the conclusion of the current consolidation (either a final capitulation wash out or a strong rise from the Handle). [In hindsight, I'll take 'B' for a 1000, Alex].

We have not yet broken epic support, and no amount of anxiety in the markets can change that fact. NFTRH is bullish the gold stocks, and that is not a 'price' prediction. It is a simple fact. Fundamentally, unless the analysis is garbage, I am supposed to be bullish because I am not a day trader. And I can stand the ups and downs (with a good helping of risk management).

Others may be well advised to await certain upside confirmations, which of course NFTRH will [be] watching for each week, before strong commitment."

Again, it was hard to write the last 3 paragraphs back on June 26, because there was little in the way of positive reinforcement from the market action of the time. But the technical parameters guided the way and allowed the sector fundamental analysis the time needed to become compelling as well. Now we are on new signals and new parameters and the markets a flat out fun again.

Am I touting? Look, in Newsletter Writer 101 they taught us the ABC's; Always Be Closing. If you are not going to tell your own story, who will? Yet, I try to temper this because a) I am not always right and b) unless you are willing to 'tout' every screw up, it is probably best not to tout every swami-like feat of brilliance.

In my experience, consistent success in the markets requires these simple tools: Perspective, conventional technical analysis (it is unbiased if the chartist does not manipulate to her will), unconventional technical analysis (like ratios between markets and assets that are really macro economic fundamental indicators), perspective (with regard to one's ego, expectations and temperament) and patience. Oh, and did I mention patience?

When the weekly chart of HUI above was produced, NFTRH was managing the question "is the current situation (topping pattern obsessed over by gold stock bears in a fetishistic manner) more like 2006 (1st yellow MACD oval), 2008 (red oval) or 2010?"

HUI had long since broken out to blue sky above 519.68 and while top callers came calling recently, the big picture weekly and monthly charts kept the analysis calm and steady. Yes, the pattern at one point looked like a bearish Head & Shoulders but... it came above what any technical analyst worth his salt should have known was epic, long-term support. This support held and Huey failed to decline into the mini-disaster that was the broad global markets. This registered as a bullish divergence for the gold stock sector.

Along with the compelling technicals, NFTRH managed the developing fundamental story each week and could declare itself as nothing other than bullish, subject to technical parameters which were the epic support (green) zone and the lower (blue dotted) line of the Handle to the massive Cup on the downside and the 610 level, which was the pivot to 'blue sky' on the upside.

The fundamental picture is beyond the scope of this post, but it is compelling and it is not yet near fully expressed in gold stock prices. There will be head spinning ups and gut wrenching downs, but there are technical targets much higher; both near term and further out. Meanwhile, NFTRH is now able to adjust its parameters after many months of managing the previous ones. HUI is no longer in a bullish 'consolidation' Handle to a massively bullish Cup. It has broken the Handle

While gold gains the notoriety (and top callers of its own), the gold miners have likely entered the beginning of a phase where the mythical leverage to the price of gold is to be exhibited. Many people will simply go along with the gold stock story, but if they do not know why they are going along how on earth will they know when to sell?

NFTRH will continue to manage the developing gold stock story from a macro fundamental view along with the ongoing short and long term technical views. As noted, there will be ups, downs and moments of elevated and decreased risk. I would be happy if you join NFTRH as we manage what comes next because while the really hard work for gold stock investors is behind us, we are not going to simply get where we are going in a straight line. NFTRH will be right there managing every squiggle, and I intend to get it right again, or be early on in adjusting as needed.


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