The heavy looking precious metals complex chose the path of least resistance yesterday, which was down, as we’ve been noting. Let’s take a brief update of the technicals, with only a little fundamental discussion, which we are covering more comprehensively in weekly reports.
Among several items we’ll watch for on the macro funda, the stock market will need to stop sucking in desperate risk ‘on’ price chasers, which has not happened yet. But here is a view of what could be part of an ‘ending dynamics’ scenario in the stock market. Equity inflows are in desperation mode. This is not a timer, just like silver’s massive blow off in 2011 continued well beyond the point that excesses were noted. But the comparison to the 1999-2001 time frame, when tech stocks made a massive blow off and reversal and the gold sector bottomed and turned up, is relevant.
On the daily technicals, gold has settled to the well defined area of lateral support, which includes the gently down-sloped SMA 200 and the up trending SMA 50. The channel bottom, currently at 1240, could also be in play. Ultimately, for gold to keep the new uptrend in play, a higher low to the March low at 1194.50 is needed.
Silver got hammered off of its double top (again, there’s that failure to make a higher high to February) and in line with the deplorable Commitments of Traders data, is dropping like a stone. People should not personalize this, it was in the CoT and in failing to make a new high, the technicals as well. Silver is getting pretty well oversold as gold approaches a buy zone (assuming its post-December trend would remain intact).
As for HUI, here is the important mid-180’s parameter again. Important on the daily because March was a low and HUI needs to hold that level in order to avoid an implication of the December lows.
And it is important on the big picture monthly because the Bollinger mid-point was a bear market limiter and would logically be a bull market support (3 red arrows and 1 green). MACD is now pinching and has ducked back down into the sub-zero red zone.
Here I want to note that we are now inside of May and were HUI to let go and flush out the remaining bulls it could jab down again as it did once last year, reverse and still re-take the Bollinger mid-point. Remember, this is a monthly chart and it will only care about how May closes, not what happens during the month.
The sector can bounce here, but again, referring to the HUI daily chart, it only goes on a bullish trend with a higher high to February. Alternatively, were it to wash out in May amidst blow off dynamics in the stock market, it would really be time to pay attention. Personally, I am looking for the next big macro (lock & load) play. It happened in 1999-2001 and I see no reason it cannot happen again.
Patience, and open minds, folks.