Probable Big Up Day that Would Signal A Reversal
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Stockmarket trading has certain similarities with driving a car. As a commuter you may have driven the same route a thousand times to get to work, but every day is a new day and you always have to be ready for the unexpected, such as a child running out in front of you or someone suddenly cutting you up in heavy traffic.
We have traded these markets on www.clivemaund.com successfully over the past several weeks, avoiding heavy losses and making money in Put options in stocks such as Newmont Mining, and, just a few days back, or even a day or two ago, it looked like the drop would continue. But, like the first breath of wind before a storm, evidence has begun to appear that a possibly dramatic reversal to the upside may be close at hand.
We have seen a run of rather bullish looking candlesticks this week in PM stocks. Each day the Precious Metal stock indices have fallen significantly intraday, but gone on to close the day with only minor losses. The market is clearly finding support at these levels, and if we look at the 1-year chart for the HUI index, we can see that it arises from the trading range that developed just beneath current levels during much of September and into October. We had already taken the oversold condition indicated by the medium and short-term stochastics shown at the top and bottom of the chart into account, but had figured that after a brief relief rally to alleviate it, the market would drop again to lower levels, back down to the strong support in the 270 - 280 area. However, the all-important MSI indicator, the Maund Subscriber Index, has risen quickly in recent days to levels that indicate a market dripping fear, and a check of other sentiment indicators tells the same story. The level of fear prevailing in this market now is that which normally signals a bottom. The HUI index has been down for 16 of the last 26 trading days, with the XAU index being down for 7 trading days in a row. In addition to this, oil marked out a Reversal Day hammer candlestick yesterday bang on our previously flagged critical $54 support level, providing collateral evidence that a sudden turnaround may be in the offing. We have seen continued dollar strength over the past couple of days as expected, but this has now taken it to normal overbought extremes. It is perhaps no coincidence that the President is going on television tonight to make the troops announcement.
Alright, bearing in mind the stance we had taken just a few days back, what are the tactics for dealing with this situation? Those who have not taken action and shorted the market should not now do so. Those who have, have the choice of either covering the positions immediately, which is highly recommended at the current favorable prices. Bearing in mind dealing costs, this would probably involve getting out at a slight loss. The alternative is to wait for the probable big up day that would signal a reversal, which could be costly, but which of course might happen after further downside first.
Finally I wish to assure loyal readers that I do not take lightly having to suddenly reverse position like this, and am well aware of the frustration and annoyance it can cause, but at times, markets require it. The position taken in this article does not negate what was written in those earlier articles, but at the very least it now appears that we can expect a sizeable rally, and we need to adjust our positions accordingly.
Clive Maund, Diploma Technical Analysis
Kaufbeuren, Germany, 10 January 2007
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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
