After noting some new positive points and lingering negatives, the Precious Metals segment of NFTRH 337 ended with this…
“But the bottom line is that the precious metals are still only on a technical bounce and the CoT is giving a caution signal. We should respect both of these conditions until they are cleared. We’ll continue to update of course.”
The question had been whether or not the building pressure in the Commitments of Traders data for gold and especially silver would allow for the gold sector bounce to continue or not. HUI daily brings us up to date with the current situation.
To be very clear, HUI has not made a higher high to the March high after the post-‘Jobs’ bounce. If it does that it would be in position to challenge the key resistance at 180 (remember 180? It was key support that failed in early March). Also at that area is a downtrend line and a downward aiming 50 day SMA (HUI found resistance at the 50 day EMA, orange dotted line).
Coming into view now (PM’s are weak in pre-market) is the blue trend line and critical support at 160.
Speaking personally, I could kick myself for cashing in SIMO to fund gold stock purchases. But that’s show biz and it is neither the first nor last time I’ll have something that makes me emotional happen in the markets. But it’s a good year so far and I am not going to let any sector or any single decision change that.
I remain very light on the sector and would be 100% out (save possibly, for KDX.TO, which has been impressive both fundamentally and technically) if the blue trend line and/or the 160 parameter are violated. The failure to attain a higher short-term high is a distinct negative and that 160 level is non-negotiable. A loss of that would put things in an untenable position.
Had HUI (or XAU, GDM, GDX, GDXJ… interestingly, GLDX did make a higher high) made a higher high this week I’d be less concerned about a test of the blue trend line.
As for the macro, yield spreads spiked as they have done twice before in recent months. Trends were not changed and we wait to see if 3’s a charm as far as yield curve failures go.
Similarly, gold vs. stock markets (SPX shown here, but the situation is similar in other global markets) remains locked in a downtrend, with the ratio finding resistance at the 50 day MA’s.
Silver vs. Gold has sagged from the critical area we noted a couple weeks ago, the SMA 200 (which also corresponds with long-term resistance by weekly charts). A negative, and this area must hold as support.
HUI-Gold ratio continues to do nothing to indicate the recent bounce is not just another in a series of bear flags that fail at the 50 day moving averages. [edit from NFTRH Quality Control: This chart is in error as it is the ratio of HUI to GOLD, the miner, not the metal. The effect is the same as HUI-Gold ratio has been at least as bearish as well]
We had a bounce to a lower high off of a fundamental positive (bad employment report) but HUI remains in a position where bulls have the burden of proof, not bears. That is why we call it a bounce only. Until 180 is put rear view, that is the reality.
CoT and macro indicators are negative.
Once again, I would like to remind you of a positive way to look at this. The key is to be strong for when/if the time comes to be strong. In the markets, being strong means CASH. Say for instance that the gold sector does go on to firm up its fundamentals but prices are lower. That is what buyers look for, isn’t it? That is a big opportunity to buy value with the fundamentals at your back, not as a headwind or a future pipe dream.
So for me, the ideal situation would be to buy a declining price/rising fundamental backdrop. Much like Q4 2008, only a thousand times slower.
Alternatively, we often note that buying higher is not a bad thing if you have got improving fundamentals and confirmed technical parameters behind you. A real bull market would be a trend that can be held and ridden.
I continue to view this sector from the point of view of a would-be buyer, one day to potentially be given a gift. What I will personally continue not to do (we all have different orientations) is be a sponsor or captive long. There are too many other markets to manage, either long or short, to get caught obsessing on one frustrating sector.
Bottomest Bottom Line: Above we have gone over parameters to the current bounce. 180 is critical resistance on the upside and 160 is critical support on the downside. Further, HUI remains in a bear market until/unless it takes out 210 (Jan. high) and makes a higher high. I cannot predict what will happen, but I can predict that the parameters noted in this update will be keys to what will happen.