Yesterday morning we noted that the bulls had taken the ball back in the broad stock market. Despite a volatile day, that remains in effect as long as the market, led for example by the Semiconductors, stays in break ‘up’ mode, above the recent swing highs and/or consolidation channels (we’ll update this weekend).
This morning it is interesting to note that gold is positive despite some happy Ukraine headlines that are supposedly pushing stock futures higher. The gold sector has been generally antithetical to the broad markets lately, and Ukraine and/or Greece relief type headlines are often the stuff of gold smack downs (not that they have any fundamental relevance).
Without trying to over think it, we’ll just update the daily charts and see where the sector stands. HUI continues to drift down to a logical support area at 180 (+/-). The ‘+/-‘ is because the 38% to 62% Fib retrace range is all valid. In other words, if HUI is in a corrective move of a bullish phase that has higher to go, the levels of 188 (38%) to 174 (62%) are all valid as pullback support. Huey has already retraced 38%. The next target, if HUI finds support and resumes its rally, is the mid 220’s (upper channel line).
Gold has retraced 50% of its rally out of November. It has dropped lower than the previously noted ‘desired’ limit of 1240. I do not like the broken SMA 50. It would be desirable for gold to hold 1220, but there is more support at 1200 (62% Fib).
Fact: Gold is in a series of higher highs and higher lows out of November’s low, meaning the rally is intact. Opinion: I do not like the recent weakness in light of the still bearish CoT at the last record date. Nor do I like that gold bugs are still too bullish according to the latest sentiment readings (we’ll update this weekend and see if there is a change).
Silver has been in a Cup-like, rounding bottom. I say ‘cup-like’ instead of Cup & Handle because a C&H is a continuation pattern, not a reversal pattern. Regardless, those are just semantics. A rounding bottom is often a bullish precursor.
Silver is right at the SMA 50 and I suppose optimists could interpret the ‘Handle’ to be in the form of a small Falling Wedge. The retrace levels are noted here as well. Silver has already done the 38% and has two more potential levels that would keep the higher highs and higher lows regime intact off of what seemed like an important spike low below 14.50. Silver is completely broken at any such time as it drops below 15.50 (December and January lows were 15.53 & 15.51 respectively).
Aside from sector fundamentals, which are mixed (i.e. we do not yet have the table pounding, compelling case we had in Q4 2008) the sector continues to correct its rally from Q4 2014.
HUI’s pullback levels to an ongoing rally are noted, but it is only cooked on the big picture if it goes below 150.41, which was the December low. Gold must not drop below 1167 and silver 15.50.
Those levels are not ones that I would have any interest in exploring were I holding a healthy compliment of gold stocks. Short of a fully engaged fundamental backdrop or confirmed support and new rally leg potential, I am continuing to manage risk in the form of cash (not shorting or hedging) and paying more attention to the broad market for now.
We will continue to update the gold sector routinely since I believe that sooner or later it is going to be a ‘ready for prime time’ play above most others.