Today it is official. HUI poked 170 for the first time since we began this grinding process several months ago. And unlike the majority of the rally from the September low the most recent leg has been impulsive and gappy, in a hurry to get to where it is going.
With the fundamentals still in line (and the Fed weakening in line with short-term Treasury bond yields) I am going to be very careful about what profit taking I may try to do. Here is where experience reminds “hey Gary, be careful not to trade yourself out of a bull market.”
But this is not a technical bull market yet. Just to be clear.
Let’s dial out to a weekly chart, including our old friend the EMA 55 (aka the former bear market ‘ball and chain’ that resisted several bear rally attempts). It may be less significant now, but it’s still positive that HUI has popped above it. What’s more, it has popped above the downtrend line from the 2016 top. Not bad stuff at all, Huey.
When I established the 170 target long ago it was easy to pick a neat looking point as an objective. But the resistance area extends to above 180. So let’s have some temperance here with respect to that.
On the indicator front the HUI/Gold ratio has once again come to a point that has routinely halted it on previous rallies. The trend remains down.
But that knowledge and a $1.10 may get you a cup of coffee but it will not tell you what is going to happen this time. What has changed this time are the fundamentals (with the exception of the Yield Curve).
I am going to watch things like the stock market bounce. If it halts as expected below ‘must hold’ resistance areas (ref. SPX SMA 200 up to the 2815 level) I would continue to have resolve on gold stock fundamentals. If the macro somehow goes ‘party on, Garth!’ again, all bets are off for the counter-cyclical gold sector.
Understand that I can only be the analyst I am, which is very different from some gold stock analysts who have waited years to be able to hype us up. Maybe I am too conservative, but I believe in checking boxes along the way and building a strong case before I go all raving gold bug on you.
Bottom Line
A long watched target is at hand. Different stocks in the sector will do different things (i.e. there are dogs and stellar performers). Real money would be made with a real bull market, not with these damn bear bounces.
HUI is still technically bear bouncing, but nominal charts are at the gateway to something more. Indicators like the HUI/Gold ratio (Silver/Gold is in a similar state) are as well. But the trends remain down and things are sure to get choppy and/or volatile at some point.
That’s the way I see it right now. Questions are welcome as I know I do not supply paint-by-numbers instructions.