For those would-be contrarians watching the gold stock sector, I think an update might be timely. The bounce scenario got croaked after the Fed presented itself as more hawkish than the market expected, and folks, if you are a gold stock bull in waiting that is a good thing. In this sector you can nimbly play a bounce, but the real money is made in finding the washout bottoms that have almost ritualistically killed off over bullish gold bug sentiment (and for much of 2016 it was over bullish).
I am hearing contrarian bullish drum beats out there, including an article by EWI at Biiwii.com, talking about the bullish setup for gold. I believe that Bob Hoye/Ross Clark are forecasting a low for the precious metals complex in and around here, ‘cycle guys’ forecasting a low in gold and indeed NFTRH has gold tabbed as an increasingly bullish prospect on a contrarian basis (but behind Treasury bonds). So let’s see what the charts say during this low volume ‘Santa’ period for the markets.
Daily HUI has become oversold enough to provide a dreaded ‘bounce’, which would face stiff resistance at 193 or lower. That is the area of convergence of the declining SMA 50, the upper lateral resistance level and the downtrend channel top. This is a chart locked firmly in a downtrend.
HUI weekly shows the channel, the broken EMA 55 and thick support beginning in the 140s and ranging down into the 120s.
HUI monthly has dropped below the Bollinger Band’s mid-point, which we had noted to be a bigger picture support marker. We are still in-month however, and what I would love to see is a drop to the 140’s and a rebound that recaptures that mid-point (currently 171.42). Too much to ask? Probably, but something along the lines of a washout and sharp reversal, on volume to finish cleaning sentiment, would be a serious bull signal. The problem is the seasonal; what kind of volume is in play for the next 1.5 weeks?
There are several other options in play as there always are in any market, but I wanted to update the pictures because I found myself wanting to listen to the siren calls of those getting contrarian bullish, and take a timeout with the charts. Another scenario is that Huey closes December above 171.42 and we leave the drama of ‘real or Memorex?’ (a real rally that will break 193 or a bounce to that resistance?) for January.
Advising bullish (and then noting it generally to the public) would bring more promotional value to NFTRH than advising moderation. But there is a time for everything, and the charts do not yet give me much reason to state anything other than that the sector is still in a process of grinding out the thick over bullishness by momentum-oriented entities that held sway for the first half of 2016. In other words, a correction seems to be doing its job.
Looking at the daily chart above, I want to see the 140s (or lower) before the 190s because that could (if the rest of the macro falls in line as well) be a table pounding buy area. Meanwhile, Santa season is a silly season and on low volume with limited inputs, markets can bounce around. If HUI bounces to 190 during Santa, I’d use caution there. But the macro can change quickly as we’ve seen in 2016, so we should be ready to change with it.
We have been noting that the US stock market is setting up to under perform current euphoric (Tumponomic) expectations and associated sentiment. A weakening there, trapping the over bullish multitudes, would be the best thing for gold and the gold stock sector. But there too, current trends remain in place as we float through the Santa seasonal.