The volatility arrived this morning after a burner of a breakout from the flags that were formed last week (GDX was shown in NFTRH 539 just beginning to sneak out of its flag). Here’s a straight daily chart TA update to show normal pullback areas.
We had noted that HUI 170 (original target) to 180 was a thick band of resistance and Huey reversed in-day inside the zone yesterday. With gold and silver down .73% and 1.82% respectively we can anticipate additional follow through to the reversal. 170 (at the top of the flag) and a gap below it are logical and normal pullback areas. More support is shown at the top of December-January highs in the 163-164 area.
Assuming indicators like the HUI/Gold ratio stay on track, this would be the type of pullback that buyers would be waiting for. On the surface it feels like ‘here we go again, the gold sector’s gonna get creamed’, but if the risk ‘on’ world turns and the indicators remain favorable it would be an opportunity to buy a counter-cyclical sector.
HUI did not get hysterically overbought, but it is short-term overbought and as noted in yesterday’s update:
With all due respect to the volatility that will likely enter the picture as the miners get overbought and gold knocks on the door of the big macro gateway (1378 bear/bull long-term resistance area), the signal for a longer-term positive phase in the gold miners is positive if HGR holds this break above the SMA 200 and changes trend.
So here is the first disturbance since the flag began to form in late January. The risk is that the activity of the last few days was a final flurry to a long-watched resistance area. I am going to put the HUI/Gold ratio (HGR) first and foremost now as the indicator to watch to make that determination.
It too put on a reversal in-day and frankly, I’d have probably done a little selling had I not been out for the afternoon (as noted in the Trade Log). But HGR is already at an interesting point because if it were to hold the first level noted by the green bar we’d think ‘hmm, something really is going on here’.
Below the green bar and the SMA 200 (black line) things start getting dicey again, for the short-term at least. So if things get dicey, the 50 day average is what we’d want to see hold since it is the point from which the ratio held and launched upward. On the other side of the coin, we can watch the miners today and tomorrow to see if this time really is different and HGR can hold the .128 area.
Here are the first three short-term support areas for gold, which has already pulled back to 1338. Watch 1326 and the top of the flag as the first pullback support. Two more are noted. Note gold’s overbought RSI.
Silver very plainly made it to the resistance we have noted would be very formidable. 15.80 is the first area with some minor support and then the area just above 15.60 becomes key as that was the area of December 2017 low, the July 2018 high and an area that the SMA 50 is rising toward.
As a side note, you will notice that HUI, Gold and Silver have each made a “golden cross” of the SMA 50 above the SMA 200. While that is obviously a longer-term positive signal, as we often note it is one that is so often met with a volatile downside reaction to punish those who bought because of it.
Volatility was expected and it is here (to mini or maxi degree as yet to be determined). We have reviewed daily chart support areas where a fundamental precious metals bull would want to be buying.
We will also keep a close eye on indicators like the HUI/Gold ratio and fundamentals like the state of the cyclical risk ‘on’ world to make sure the sector and macro fundamentals stay in line. If they do, this looks like the buying opportunity that many have been waiting for. If they do not, it’s back to Pallookaville. As of now, things seem lined up for gold and gold stocks, pullback or not. If that changes by indicators or fundamentals, we’d have to deal with it, no ifs ands or buts.