Late Night Notes To The PM Stock Weary

It's my gut feeling the price of Gold did not break freely above the $550 level till the end of March. Because of that, the higher average price of Gold is simply not reflected in the earnings of the Gold stocks for this quarter. Since the reserves are based on a 3 year average, they will not be boosted until later this year or early next.

I do not believe the "market" is ready to look at forward prices of Gold in valuating the Gold stocks at this time. I don't think the "market" has been willing to valuate the Gold stocks at this time based on the higher current price of Gold. I think the market wants to see if Gold can hold the break-out level above $550 before it will revaluate the Gold stocks commensurate with higher average prices. All it will take is a re-test of higher levels, one which shows this move is for real, and that would set the Gold stocks off like fireworks. At this time, I do not believe that even $550 Gold is priced into the Gold stocks. If not, surprises to the upside will be seen when the second quarter earnings come out, IMO.

The SA Golds are somewhat different because Gold in Rand has broken out to new highs. Yet, the SA explorers have not really benefited by it yet since their reserves are valued on a 3 year average. With that said, some Gold stocks will always be valued higher than others due to the sentiment of investors.

Now, as far as this correction goes, my gut says it will not be deep, nor long. In fact, once the HUI has broken through angled overhead resistance in the 400 area- the HUI will rocket off like Gold did once it broke through the $450, then $550 areas. IMO, the HUI through 400 in an appreciable way will give us 740 over the 6 to 8 months following the break- though the usual corrections will occur in steps.

Think about the above. How many people have you seen who seem ready to puke their guts out? There was no run-away move higher in the HUI, it has corrected all along the way.....so far. Right now, investors are looking at the PM stocks take a dive, and they are saying to themselves, "Oh, I was right to lighten up, my favorite top-caller was right-even if he called a top 4 times before we got one, I am so glad I am only 30% in PM stocks. Wrong! This PM stock market is loaded with gunpowder and ready to go off at any time. [And it will when the big boys are loaded and ready....in fact, I think the market makers were probably out of inventory.] After scanning dozens of charts, there are many PM stocks that have broken through the moving averages and now are only retesting those MA's before going into lift-off mode, IMO. Look at the chart that Mr. Bug showed, today, of LNXGF. Most look much like it does. It may take some weeks to get the moving averages back in line, but it won't take a lot.

In the first fractal, or at least what I have termed the first fractal, the corrections were held by the 20 MA, or they broke slightly thru the 20 MA. All were absolutely supported by the 50 MA, though few even touched it. That is the sign of a very strong bull. (Just look at some charts of the strongest PM stocks and the moving averages.) Today, the 20-week MA for the HUI lies above 325. The 50-week MA lies at about 286. I would not be surprised to see the HUI trade slightly thru the 20-week MA, then bounce up, then possibly trade down to the 50-week MA which might be at about 305 at the time. Or, the 20-week MA may hold the whole decline. I would put the higher probability of this decline ending at 327 down to 305 with the remote possibility of it dropping fleetingly to the 270 to 280 area. If the HUI drops below 300, it will be like trying to keep a very large inner tube under water, IMO.

Why did this sell-off happen? Look at all of the smaller investors who have said that they were barely invested. Listen to what JS has had to say about the "Battle of Titans." This was not about the small investor getting scared, IMO. This was all about some big money wanting an opportunity to take a much heavier position at lower prices. So what were these same moves about in fractal one? Well, ditto, of course. All of the same psychology repeating- all of the same games by the same parties- all with the same end results. What has changed fundamentally? Nothing. Some Titan just pushed too hard and too fast. This is why I like to describe the technicals as a volatile oscillator moving about around the fundamentals of a market. The fundamentals move in a straight line. The technicals which are based on the behavior of humans tend to oscillate from under bought to oversold. Sometimes the move from one to the other can be very fast.

Also, regarding the chart of the HUI. The trendline supporting the whole move since 165 in May of 05 now lies at about 305. The angled line that I had expected to hold the second fractal also lies at about 305. IMO, the HUI has massive support at around 305. I watched some PM stocks, today, especially smaller ones, that sold off heavily till massive buying came in. Those large lots, some in the millions of shares for cheaper priced PM stocks, were not individual buyers coming in to scoop up those shares. Big money wants in very badly, IMO.

Don't be left at the station...........

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