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Finally, the Gold Stocks Get Their Chance!

In my commentary of May 6 entitled "Are inflation pressures under control?" it was observed that along with the super bearish financial press pronouncements on GM and Ford, "the recent spate of doom-and-gloom headlines strongly suggests that the latest stock market correction has ended and a short-term bottom is in." This was confirmed by the 2-week blow-off rally currently underway. But while the broad market, and especially the tech sector, rallied, the gold sector got left behind in the dust. Now, however, it seems, the gold will get their chance to rally in the days ahead after spending the last several days trying to establish the recent bottom.

At turning points it's often possible to gain a "heads-up" advantage over the field using a reliable micro-term triple moving average series that incorporates the work of the commodities trader J.R. Maxwell (who wrote a valuable book on the subject back in 1976 entitled "Commodity Futures Trading with Moving Averages").

Maxwell used the 3/5/10-day MA combo but I've tweaked with this a bit to make it more conducive for stock trading to come up with the 3/6/9-day MA series, the shortest possible daily moving average series for stock trading without resorting to the tick chart. Maxwell's 3-day moving average can be applied in conjunction with the 6-day and 9-day MA (especially useful for the commodity stocks including the golds) to the leading gold stocks in for turning point clues.

The chart suggests that the XAU gold/silver index will rally in the days ahead with the first nearby test at the 85.00-86.00 pivotal area, and then possibly to the 90.00 level. The MACD indicator is oversold and has traced out a potentially bullish divergence relative to price in this indicator and the 9-day trend line (as shown below) has been tested enough times in the past two months to suggest a breakout attempt to the 85.00-86.00 area and possibly to as high as 90.00 before strong resistance is encountered. The action of the past few days strongly suggests that last week's low will stand for the immediate-term.

Freeport Gold (FCX, recent price $33.91) is one of our favorite leading indicators for the gold stock sector and appears to be near an immediate-term breakout. The yield trend for FCX, currently about 3%, has risen enough in recent weeks to justify a bottoming and attempt and oversold rally. FCX has also tested its 9-day moving average several times in the past two months, another indication that FCX is likely to try a rally up to its first pivotal target at $36 and then to the $38 area or higher before encountering resistance.

 

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