I am finally getting myself oriented after being on the road yesterday and completely missing the FOMC nothingburger of future inflationary policy. The broad markets are using COVID-19 resurgence fears and Powell’s own words about how bad the economy is to throw a fit. Of course, risk had been high for so long this was inevitable as some point.
My concern here, however, is how well correlated HUI will be with SPX this time, as the volatility crops up. So I did a chart showing HUI on top of SPX showing us that they both began their corrections in February after HUI had spiked to a false high and SPX gapped down from all-time highs. That is the first shaded vertical bar. The second one shows that HUI filled its gaps from last year and put in a hard bottom well before the broad markets bottomed.
Now the idea has been for the gold stocks not to suffer the same pull they did last time when the stock market starts to quake again. It is important to note that HUI’s 50 & 200 day moving average trends are up. While SPX’s larger trends are up (that’s important to keep in mind during any corrections) its daily trends are neutral to down. If the market corrects and if HUI is gets caught up in it a reasonable expectation could be a hit of the 210 to 220 zone, a 50% Fib retrace of the entire rally and a gap fill. It could do those things while maintaining its uptrend. But 210 is a long way down. I am not predicting it to happen, but it’s certainly technically doable and would not break the index as the March crash did.
Just an FYI as it looks now. I would not plan to ride anything but the core (GBR.V, MAI.V, WDO.TO and possibly SAND) down to those levels. As it stands now, the gold sector is only pulling back to test the break above the EMA 20 yesterday (same can generally be said for the XAU, GDX & GDXJ). But yesterday’s upside did not eliminate the correction scenario. A higher high to the previous high (in HUI’s case just above 280) would indicate that. So Huey, take out 283 on the upside or remain in correction mode.