The bounce/rally is on (duh). We knew that this was very likely off of oversold conditions and dramatically reduced risk. What we didn’t know is the nature of the rally. Hence, I’d like to discuss reasonable forward plans.
Here is a daily chart of Huey (current: 772) showing a Fibonacci grid to the upside. It has now retraced 50% of the decline from the March 2nd top. In breaking through the 200 day moving average, the odds are increased that it could continue to the 62% Fib at 831.
We have already had a tradeable bounce, and at 831 that would be quite a trade, considering the rally began below 600. If HUI proceeds through the 50% Fib I am personally going to have significant caution at the 62% Fib, which includes visual resistance.
As we exit the summer my bones tell me that a September market correction could be in the offing. Per the seasonal pattern (on average), September sees high in SPX, followed by a decline to an October low before finishing the year quite strongly.
HUI does something similar, at least with respect to a September high and hard pullback to an October low:
As usual, I’ll note that seasonal patterns can and do fail in any given year. But considering the bull in play right now and the summer silly season, when da boyz gets back from da Hamptins we could have some volatility after the relatively calm mid/late summer season. Oh, and Warsh is going to say some words later this month at Jackson Hole, which may or may not be material to the situation.
HUI is not going to continue going straight up day after day as it already has. Indeed, it, along with other markets are increasing my caution levels because, diverse as it is, my portfolio just keeps going up each day. That is due to more than gold stocks and frankly, I am not that smart.
At some point a market pullback is likely to rough up most sectors. I don’t want to get caught patting myself on the back into such a thing. As for gold stocks, a future pullback in HUI could target the SMA 50 and clear support in the 660 to 670 range. I would see such a pullback as a buying opportunity for an extended phase or new bull market leg.
I pretty much know why I hold everything I hold. Some of these items are only just recovering off of corrections, much like the Software sector did months ago, as anticipated back then. Others, like Semi, may be about to make a test of previous highs before renewed downside.
So I am not going to short much of anything yet, but as we move to late August, Jackson Hole, and the September seasonal I cannot see how I will not have taken some kind of action. Profit-taking, especially in extended items, feels better than hedging. But the main point dear readers is that I think we’re going to get a pullback in stocks, including gold stocks, prior to resumed bull, potentially into year-end.
That’s the current plan. I am not going to play-by-play call on this. That will only increase your noise and potential to get whipsawed. But I want this update to suffice as what it is, a guide to a caution phase upcoming with some targeting should that come about. Personally, I’m going to think about selling items that become extended and overbought.
