NFTRH; Stock Market vs. Gold Sector

With stocks starting the week and a new month under pressure our analysis holding open resumed correction potential is so far looking good.

But on the other side of the coin, our analysis leaning short-term bearish for the gold sector is not looking so good.  This is not just because the prices are green today (gold stock indexes are still below the key resistance of the 50 day averages which, for HUI is 202.58).  It is because, like Treasury bonds (also green), the gold sector is often ‘anti’ the stock market and risk ‘off’.  As you will recall, we often note that stock market weakness is a condition to improving fundamentals in the gold sector.

I have covered a short on JNUG for a slight loss and sold the SLV puts for a larger percentage loss.  It’s showbiz.  If the stock market sustains a bearish bias the precious metals – like Treasury bonds – are a potential counter balance to that.  So ‘why would I be short a counter balance?’ is what I am asking myself.  I wouldn’t.  I am only short SPY and IWM now, and taking a few more profits on long positions (along with a sale on chart spec RXN before it could revert back to a paper loss).

Bottom Line

The stock market is bullish in its trends, but we have been open to a correction resuming after last week’s bounce repaired the market’s frayed nerves about the recent Healthcare debacle.  I am handling that correction potential as has been noted repeatedly; by taking profits, limiting losses, rebalancing and raising cash. The theme of this week’s abbreviated report is after all, ‘moderation’ while the market reveals its next trade-able direction.  Having plenty of cash will be very nice ahead of that.

I am also long ‘counter balance’ items like the gold sector, but not in a committed or substantial way until the sector takes certain technical milestones (for gold that would be the SMA 200 and the Feb. high of 1264.90 and for HUI it would be the SMA 50, the recent high of 205.42 and the February high at 223).  A combination of solid technicals and the proper macro backdrop (like the US stock market resuming a correction) would go a long way toward changing the stance on the gold sector.

But again, ‘moderation’ is good as the process plays out.  If the stock market were to go really bearish the miners could get wood shedded along with stocks and that would be a real buying opportunity.  We should not try to trade everything in a day.