Buy With Both Hands And Feet
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The sudden about-face last night to become bullish on gold and silver stocks again requires some explanation. We have been aware for some considerable time that Precious Metals stocks have been woefully underperforming gold and silver, a point made clear by Mr Bob Moriarty in his recent article, “Buy with both hands”. But we’re not minded to go long because our research indicated that another heavy decline in gold and silver was imminent, which is what we have just seen. Gold dropped by a hefty $33 yesterday, vindicating our near-term bearish stance, but what was remarkable was that while Precious Metals stocks dropped substantially, the drop was nowhere near commensurate with the size of the drop in gold.
Regardless of the extent to which this can be attributed to the strong rise in the broad market, it was a bullish sign. It implies two things - one is that even if gold does fall to our original immediate downside target at or below $850, stocks are unlikely to fall much further, the other is that the moment gold and silver turn up stocks are likely to rebound sharply. This was the reason we ditched our speculative Puts yesterday in the last hour of trading for a profit.
On the 1-year chart for the HUI index which was posted on the site last night as a preliminary to this full article we can see 3 compelling reasons suggesting that stocks have hit bottom and are now a strong buy here. One is that they yesterday refused to break below their low of the 1st quarter, a strongly bullish sign. Another is that they have dropped back to the lower support line of the uptrend channel shown. Still another is that the index is now not far above a rising 200-day moving average, a classic buy spot, with a support zone not far beneath. Finally the index is now deeply oversold, as shown by the MACD indicator at the bottom of the chart. Now, you may ask, weren’t we talking about a bearish convergence of the uptrend channel on this chart a few days back? That’s true, we were, and the channel lines do converge when the point of origin of the lower channel line is taken to start from the August low, and when log scaling is used, but when the point of origin is taken from the December low, which is legitimate as it is outside of the earlier trading range, and arithmetic scaling is used, the bearish convergence of the channel lines is eliminated. Is this a fudge? - we would rather call it an adjustment - a necessary one as the other factors we have just listed are indicating that we are very probably at a bottom.
More follows for subscribers…
Clive Maund, Diploma Technical Analysis
[email protected]
www.clivemaund.com
Copiapo, Chile, 2 April 2008
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Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.
Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.
The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.
Visit Clive at his website: CliveMaund.com
