The Jig Saw Puzzle

Trying to fathom the market is much like putting a jigsaw puzzle together. If used with circumspection, charting can be a great help, but the really important pieces are the "subtleties" and "nuances" that need to be teased out from the charts - the one's that don't hit you over the head.

For example, here is a chart of Newmont Mining - which is the largest gold mining company in the world. For me, this company's stock is a proxy for what the largest gold investors are doing. It is doubly important because "Volume" is available on this chart and is not available for the $XAU as a whole (Source: StockCharts.com):

Note how the price action has been relatively bullish - with rising bottoms trending back towards the falling Moving Averages - but the rising price bottoms have not been confirmed by the falling bottoms on the On-Balance-Volume (OBV) chart. Of course, "one swallow does not a summer make" but volume typically precedes price. We therefore need to take this piece of the puzzle seriously, and it is appropriate that we start to dig further.

Of some concern is that in the following $HUI chart, the price has twice bounced down from its 200 day moving average line, and it is interesting how the 50 day moving averages on both NEM and $HUI are threatening to penetrate their 200-day MA's on the downside. It is also interesting that the price action of the $HUI seems to be more informative than that of NEM's price action alone - which is yet to reveal any secrets.

The OBV chart for Harmony (a slightly riskier and more volatile investment than Newmont because of its Sovereign exposure) today gave a tiny sell signal several days after its 50 day MA actually penetrated its 200 day MA on the downside.

The "sell" signal may not be real, but technically, the OBV chart breaking slightly below a previous low might be more important than it seems. So let's keep digging.

Anglo's OBV chart is looking a lot stronger than the other two mining companies' shares (and its price action has also been stronger than the $HUI as a whole for that matter)

Note how its price seems to be finding some support at the 200 day MA level, and also how the OBV has been relatively flat. As this is another large player in the gold market it seems that the NEM puzzle piece may not fit as comfortably with its neighbours as it first appeared.

The chart of Glamis Gold seems to validate this former view even further. Note how the OBV has been rising even more strongly than any of the others. Note also how the price is now flirting with its 50 day MA.

The relative strength chart of NEM vs $XAU is still validating our earlier conclusion (some weeks ago, and before the gold price itself pulled back sharply) that the Gold shares may have entered a consolidation phase. Note how NEM's RS trend is still bullish (even though its Point and Figure chart itself is still showing a sell signal - not shown). What this tells me is that both NEM and the $XAU "could" keep heading south, but with NEM falling less quickly.

Further validating this earlier conclusion regarding consolidation is the following chart of the more speculative Harmony relative to the $XAU. Note how it is sitting on support, but seems to want to pull back closer towards its rising trend line. Again, this is more evidence of a possible consolidation of the $XAU than it is of a weakening HMY. (ie the speculative air within HMY's balloon may just be allowed to escape until the point where the inherent risk in that company's shares is acknowledged)

On the gold price chart itself, a mildly bullish falling wedge (dating back to its peak of around $390) seems to be gently unfolding.

Further, the gold price seems to have found some support at around $325 as can be seen from the following chart (courtesy DecisionPoint.com); and it is encouraging that the stochastic (PMO) seems to be wanting to bounce upwards from an extreme low. In fact - if the PMO rises from here it will probably indicate a "buy" signal.

Conclusion

Overall, it seems that the charts are pointing to a possible bottoming of the gold price and a continuing consolidation of the gold shares. In turn, this would imply a gently rising gold price and a period where the markets "catch their breath" - with the more speculative counters still having some downside potential. The Primary Trend of the gold price is still "up", but the adrenalin seems to have stopped pumping for a while.

On the bullish front are the falling oil price, and billions of dollars of reparations contracts that will likely be awarded; and on the bearish front sits the debt mountain - the view of which seems to have been temporarily screened by all the smoke. It's still too early too tell what will happen in the short term - but the charts are saying "consolidation" for the time being. And the puzzle is still unfolding. Of course, the Primary Trends are still intact - Bullish for Gold and Bearish for Industrials - and it will be prudent to regard these Primary Trends as the "picture on the puzzle's box". They continue to act as an overall guide regarding where the individual pieces fit.