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A number of really interesting
developments have occurred so far this week. Newmont is making fresh new
highs and attached a dividend to rise in turn with the commodity itself.
Three hours later, Hecla Mining issued a similar sort of plan. The seniors of
the HUI are holding it up, while stocks that I am following Hecla (HL) and US
Gold (UXG.TO) still have not put in bottoms. Stocks such as SanGold that are just emerging producers and getting the
bugs worked out also are still basing. There are several charts to suggest
that gold stocks have broken the downtrend pattern to the broad stock market
indices, but still will be subject to corrections when they occur. Since the
next major top is not due till late 2012/early 2013 based upon our
Contracting Fibonacci spiral cycle, gold and silver stocks have a very nice
run ahead of them. However, the opportune time lies somewhere between now and
mid November 2011.
HL has the better pattern compared to
UXG because it has been correcting for nearly one year (much like USA.V). The
move up in stock prices will begin at the top and work its way down. If USA.V
manages to get to $2/share next year after majors have run, you know a top
will be not too far off. One stock that I was following was CRK.TO or
Crocodile Gold Corp. Based out of Australia. They are a similar sort of
company compared to SanGold in nearly every regard
(similar share float, similar amount of gold), but the share price has been
clocked the past 19 months. This ties into the Australian government trying
to impose huge tax grabs on companies for doing business there, much like
Alberta, Canada attempted back in 2008. This weakened resource companies
based in Australia for fears that no money could be made and resource
development dried up somewhat. In Alberta within two months after their
announcement of up to 25% royalty charges, somewhere between $20-30 billion dollars worth of projects were mothballed and investment
capital placed elsewhere. The red-neck Alberta government tried to back peddle on this, but it is very slow for investors to
return when someone tries to act like Hugo Chavez in so called democratic
countries.
For Uranium stocks, Australia is as
good as any, maybe better, because stocks are undervalued due to the current
ban on Uranium production there. Australian oil production is in decline and
senior government officials know that unless they have solar panels covering
the Western part of the country, they will have energy shortages. The only
way to efficiently solve this problem is with Uranium. New styled Uranium
reactors are very efficient and are impossible to have melt downs
occur...they must be built first however.
So, what to invest in? HL and UXG are
my two candidates for establishing positions once the charts indicate bottoms
have been put in place. As of this AM, there were 24 million shares being
shorted on HL, out of a total of 290 million shares, or just shy of 10%. The
number of shares being shorted represents 3 days to cover. The short
positions increased by 3% yesterday, so this suggests further downside. To
view American stock short positions, www.shortsqueeze.com is useful for the
free stuff.
Also, the short- position in Newmont
Mining increased by 6% yesterday. The number of shares being shorted against
NEM is nearly half of HL, so there is a likelihood that a top is looming.
Analysis today will review all of the above thoughts from a technical
perspective.
One thing extra I will address about
Manitoba for being a mining district...the Rice Lake Gold Camp is the only
actual true gold mine in Manitoba and government officials want to let this
grow. Taxation is done in accordance with a set policy that is not intended
to stifle economic development.
AMEX Gold BUGS Index
The daily chart of the Gold Minder
Bullish percentage index is shown below, with the HUI shown in green. The HUI
has been in an uptrend for nearly 3 months and the ratio is near 80, which
has been indicative of preceding tops. Full stochastics
1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in
1 and 2 and above the %D in 3. In general, periods of 3 months of upside in a
given index require some sort of correction...chances are a top in the HUI
was put in place in early September and a retest is likely before some sort
of decline lasting 3-4 weeks. The S&P 500 Index has 7-10 days of sideways
to upward price strength at a minimum as mentioned two days ago, so this
should provide strength for precious metal stocks. When the next down leg in
the S&P 500 index occurs, it should provide some weakness in the HUI.
Figure 1
The daily chart of the HUI is shown
below, with the lower 55 MA Bollinger band in curling up in late August,
suggestive that a top was put in place. Upper 34 and 55 MA Bollinger bands
are at 646.93 and 647.82, compared to last week's values of 636.97 and
645.75, respectively. Rising upper Bollinger bands suggest that a top is in
place and unless continued upside and forcing short positions to buy, it is
likely the buying position for precious metal stocks is sometime in late
October/early November. Full stochastics 1, 2 and 3
are shown below in order of descent, with the %K beneath the %D in 1 and
above the %D in 2 and 3. Based upon the lower Bollinger bands being so var from the top and upper Bollinger bands at overbought
levels, the daily chart of the HUI suggests weakness. Anyone wishing to
establish short-term trading positions should be careful based upon the data
from this chart.
Figure 2
The weekly chart of the HUI is shown
below, with the lower 21 and 34 MA Bollinger bands in close proximity to each
other, and nearing the lower 55 MA Bollinger band...the lower 34 MA Bollinger
band broke above the 21 MA Bollinger band, suggestive that the HUI is
overbought in the short-term. All three upper Bollinger bands are in close
proximity to each other and just above the index. A close in the HUI above
640 would generate a buy signal. Full stochastics
1, 2 and 3 are shown below in order of descent, with the %K above the %D in 1
and 2 and beneath the %D in 3. The %K in stochastic 3 is slowly curling up
and the %K in stochastic 2 suggests upside strength lasting 6-8 months
out...there can however be 3-4 weeks of general weakness in the HUI. A great
buying opportunity lies somewhere between late October and early November
based upon this chart...lower Bollinger bands will be in a more favourable setup to support a 6-8 month run up in prices.
Figure 3
The monthly chart of the HUI is shown
below, with upper Bollinger bands continuing to drift above the index. Lower
21 and 34 MA Bollinger bands are rising, but it will take the 21 MA BB to
curl down and generate a buy signal on the monthly chart. Full stochastics 1, 2 and 3 are shown below in order of
descent, with the %K beneath the %D in 1 and above the %D in 2 and 3. The %K
in stochastic 1 beneath the %D confirms the mentioned Bollinger band setup
that another 1-2 months of time is required to generate a buy signal.
Figure 4
The mid-term Elliott Wave count of
the HUI is shown below, with wave (XX) thought to be forming at present. It
is possible that wave G of is underway of a diametric triangle extending out
from the triangle count shown below, but this would require at least two
months of downside in wave (XX). The count shown at present implies wave (XX)
is forming a flat structure, with wave C yet to happen. This is the preferred
count and indicates that a top likely was put in place back in early
September.
Figure 5
The long-term Elliott Wave count of
the HUI is shown below, with some added tool items. The sine tool indicates
that the move up underway at present indeed could be a diametric triangle
with a bottom not likely due until December under this scenario. Under the
preferred count, the corrective structure is already 4 1/2 months in
duration, which would provide a strong base for upside in 2012. The longer
the present correction takes to conclude (upside move within a larger Degree
pattern), the more upside potential. The actions of HL and
Newmont caused quite a stir and was realized yesterday in the HUI.
Generally, the majority of market participants are dead wrong, so be careful
about what is put out on Stockhouse or other blogs.
Those accumulating for the next 12-15 months...it is worth to slowly dip
one's toe in the pool but do not jump in head first...it could be shallow.
Confirmation is required before any buy signals are given...the upward trend
in the HUI is about the maximum length of time it generally runs before some
sort of a pullback. The level and time duration of the pullback will be quite
telling.
Figure 6
What are the reasons for weakness in
gold stocks? Both the stock market weakness and strength in the US Dollar
Index. Below is a very small excerpt from last weeks
USD index Update.
The short-term Elliott Wave count of
the USD index is shown below, with the thought pattern forming denoted in
green. Wave [E] is clearly underway at present, and should have at least
another 4 1/2 -6 1/2 months of upside. Technical charts suggest sideways to
moderately higher prices in the USD index over the course of the next 7-10
trading days before partially retracing the sharp move that occurred during
the fist two weeks of September.
Figure 7
The mid-term Elliott Wave count of
the USD index is shown below, with the thought pattern forming denoted in
green. The bottoming pattern for wave [D] took longer to complete than
expected, so the proposed rising pattern will likely occur, but shifted out
in time by 4 months. The minimum upside target is 81-83, with an upside
extreme of 85-87. All of this should occur by early February to April 2012.
This is the minimum time frame expected and it could evolve into a longer
pattern if wave [E] forms a triangle within a triangle (this occurrence could
drag out wave [E] by 12 months). When these things happen they are
immediately noted, but the passage of time must occur for that to happen.
Figure 8
Although the above analysis was
performed last week, it still is pertinent for the coming months ahead, which
presents a road map of what to expect. Technical analysis S&P 500 Index,
AMEX Gold BUGS Index, US Dollar Index, 10 Year US Treasury Index, AMEX Oil
Index, Oil, Natural Gas and 14 Horizon Beta funds are updated weekly, along
with market commentary and articles related to the macro economy, as well as
where we are in the Contracting Fibonacci spiral.
David Petch
Treasure
Chests.com
Treasure Chests is
a market timing service specializing in value-based position trading in the
precious metals and equity markets with an orientation geared to identifying
intermediate-term swing trading opportunities. Specific opportunities are
identified utilizing a combination of fundamental, technical, and
inter-market analysis. This style of investing has proven very successful for
wealthy and sophisticated investors, as it reduces risk and enhances returns
when the methodology is applied effectively. Those interested in discovering
more about how the strategies described above can enhance your wealth should
visit our web site at Treasure Chests
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