On Your Marks - Get Set...
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Major uptrends start when people are least expecting them, and sadly that includes a lot of analysts who, being human too, frequently get caught up in the prevailing psychology. Before a new uptrend starts its imminent onset is typically camouflaged by a baffling array of conflicting indications, so that those who ask the fatal "what if?" question, will forever be deflected from buying at the most opportune time. The Precious Metals sector has certainly been giving mixed signals these past few weeks, with a potential Head-and-Shoulders top appearing in the indices and negative volume behaviour in many stocks on the one hand, amid what otherwise looks like a normal reaction from a very overbought condition back to strong support on the other. On www.clivemaund.com we have thus far adopted a cautious stance, a too cautious stance it is now believed, due to the former manifestations.
The correction in the Precious Metals sector has had a devastating effect on the prices of many stocks, but that is not unusual in this relatively thinly traded, speculative market. The result is that many punch drunk investors, reeling from the clobbering they have recently received, and hanging on the ropes, are in no mood to rush back into the fray. Likewise, those who enviously watched the preceding big runup in the sector from the sidelines, and were starting to get interested themselves, are now congratulating themselves on their aloofness and restraint, saying "Told you so, that sector is for bums and panhandlers, not serious investors". The net result of this psychology is the comparatively very low trading volume in stocks in the sector, a circumstance which frequently precedes a major rally. This low interest is reflected in the all-important MSI, the "Maund Subscription Index" which is at a level that typically precedes a major uptrend.
A review of the charts of the PM stock indices and many PM stocks at the end of last weeks' trading revealed a subtle but very important shift, and as this is a market that likes to "keeps its cards very close to its chest", such a shift is expected to lead to a dramatic change in sentiment, resulting in a sharp upside breakout.
On the HUI chart shown here we can see how the index had been threatening to complete the Right Shoulder of a potential Head-and-Shoulders top area, but bounced off its 200-day moving average instead, then rallied up through its 50-day moving average, and appears to be holding its ground so that the 50-day m.a. is now turning up just above the 200-day - the classic precursor to a new intermediate uptrend. Thus, the potential Head-and-Shoulders top appears to be aborting, meaning a sizeable uptrend looks set to begin almost immediately. This observation has led to furious activity at www.clivemaund.com this weekend as a raft of PM stocks have been swiftly reviewed to capitalize on a likely breakout and new intermediate uptrend. To be more sure we could wait for a 15 point up day in the HUI, but why miss out? - buying now you have more downside risk if this assessment proves incorrect, to be sure, but you can also set closer stops, as we have done in the stocks already recommended this weekend.
Most encouragingly, Head and Shoulders BOTTOM patterns above 200-day moving averages are right now completing in a wide range of Precious Metals stocks. A selection of these stocks, and others that look similarly promising are reviewed on www.clivemaund.com .
Clive Maund, Diploma Technical Analysis
30 July 2006
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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
