NFTRH Update… Gold Stocks, Gold & Silver Discussion & Charts

The first 5 headlines on a popular gold website I reviewed this morning are either flat out bullish or scouting for a bottom.  The gold bug mind is tattered, but alive and intact.  Despite this, I think it is time to get serious about the potential for a bottom in the precious metals complex.

It has been 2.5 years of grinding bear market with the last year particularly dispiriting for the “community”.  A time window for changes in the US stock market is coming upon us and with the precious metals counter to that and considering that year-end tax selling is probably providing downside thrust, I think the buying window (subject to a possible final event) is upon us, or at least those of us who can still stand to look at the sector.  I can.

An issue is that when the HUI bottoms, it could gobble up 50 points in a day.  With the values that are being presented out there, I am entering ‘buy all in and around’ a bottom mode; slowly stepping up to the plate.  Yesterday a couple more positions were added off the watch list.  Overseeing this process are some ‘crash puts’ on GDX (18 & 19) dated to January that were also added on yesterday’s upside.  The January date covers what I think is the potential bottoming window.  But it is cutting it close.

Of course, another problem is that the fundamentals have been going in the wrong direction for the gold stocks as gold has underperformed nearly everything but silver.  This would have to be the case in an economic growth environment.  So there is a leap of faith involved.  I am going to stick with my big picture thesis here and the idea that technicals can lead fundamentals.

Either way a bottom of some note can be expected over the next month or so.  It will be treated as a trade, but we should remain aware that after an agonizing bear market, it could also be a cyclical bull.  It is time, now let’s see what the market thinks.

hui

A ‘portrait’ view of HUI’s weekly chart shows why the resistance beginning at the June low of 206 is so important.  Yesterday HUI came up against this resistance and halted.  As long as HUI dwells below this band (206 up to 211 or so) it remains vulnerable to a final washout event (hence the crash puts).  The view above already shows what could be a head being formed on our theoretical Inverted H&S bottoming scenario.

gold

Normally you’d like to see the gold stocks diverging positively, not gold.  But that is not the case today.  This could well be due to tax selling season driving the miners to a final low.  Still, it is a negative divergence and the possibility for new lows is open in gold.  But with deplorable sentiment readings and an excellent CoT structure, the risk vs. reward for gold is good.  Can the bears break gold to new lows, especially with the ‘taper’ talk in the background?  Oh yes.  Is gold still an anchor to real monetary systems?  Oh yes.

We have been asked to believe fully in the Wizard’s power over the last couple of years.  I still do not.

silver

Silver is at a support point and like gold has refused (thus far) to put in a new low.

Bottom Line

There once was a time on the old blog and early on in NFTRH that I used to write about buying ‘all in and around’ a correction or bottom.  The impulsive nature of the downside leg in precious metals over the last year has put that tactic on the shelf.  You do not buy all in and around an impulsive bear market.

But considering sentiment, seasonality and the sector’s mirrored contrary status to the US stock market, I for one am beginning to buy (with protection).  Gold and silver have refused to make new lows (to the June lows) with 3 weeks left in a very noisy year.  That 3 weeks is a window within which they could take a final hammering.  But whether the bottom is in or yet to come, changes are likely by January.

When gold stocks sell for PE’s of 5-7 or for below net cash value, the market is trying to tell us that gold is going below 1000 and will stay there indefinitely.  I do not believe that to be the case.  What I do believe is that this is a better than even chance to catch something that 1 year from now the herd will be looking back at wondering why it did not buy such an obvious bargain.

The herd is the herd because it likes to chase and it likes to buy high.  We have sought to remain intact for months and years on end for a reason.  That reason is not so you can read my excessively long and sometimes boring reports every weekend.  That reason is to be intact for a big picture macro swing.  I think the chances for one of those are increasing.

If I am wrong, I am wrong.  That is the market.  Risk is being manage throughout the process because I always but always manage risk.  I also look for opportunity.  I think it is coming.