Yesterday was a delayed follow through in the precious metals stocks in keeping with a general market that is trying to eat up bulls and bears. This upside burst is nothing but an over sold snap back until it starts taking out resistance levels. So let’s note the most immediate resistance for HUI, gold and silver.
HUI hit the first level yesterday and the next level is around 255 and the former bear flag cluster. Then an important resistance zone is above that at the channel top and declining 50 day moving averages, currently at 365.
Note that volume was nothing to write home about yesterday, but was generally high on last week’s plunge, which indicated another in a series of rolling capitulations. But we need to be on guard for the possibility that these rolling capitulations are not THE capitulation. Remember that each bounce has served to renew optimism just enough to fuel another plunge.
So for the HUI chart above, objective #1 is to get through current resistance. #2 is the bear flag resistance at 355 and finally, #3 is to break the channel and the 50 day averages, which would also break the downtrend.
That is a lot of work Huey has to do. Until it is successfully done, risk management remains part of the equation. Effective risk management is raising cash/profit taking, hedging via metal and/or miner bear positions or if you have chosen to invest in what could be an oncoming bull phase, simply remaining aware that the downtrend is not broken and being mentally prepared for bearish as well as bullish events to come.
Gold’s short-term resistance is clear as well. Au touched a shelf of resistance yesterday but bigger resistance would start coming into play at the declining 50 day averages and then the top channel line. At such time as it breaks the channel, say hello to a new trend.
And here is a similar story for silver.
It is a ridiculous macro backdrop and we have all heard the ghost stories (all too true in many cases in my opinion) about how and why gold is manipulated to contain what it might have to say about current global policy making. But in the uncaring world of charts, the above resistance levels will have the final say about when trends change or do not change.
A real bull market needs to start somewhere, and I can think of worse places for one to start than from a deplorably bad sentiment backdrop and major support. But the precious metals remain in downtrends and have a lot of upside work to do to change that.