Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold and Silver Stocks Bottom or Downtrend Pause?

Commodities / Gold & Silver 2009 Dec 30, 2009 - 07:23 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleThe end of the year is usually calm on the capital markets. The volatility is low, as the money managers from all over the world take some time off and spend the Holiday Season with their families. At the same time, the end of the year is a perfect time for summarizing and reviewing this year's actions and making key decisions regarding the next year. The beginning of this essay will not be any different; especially that this is the year during which the Premium Service has been introduced on my website, so I believe that a brief review on this year's performance would be quite useful.


However, I realize that you are reading this essay because you would like to know my thoughts on the current market situation on the precious metals market, not necessarily to examine my track record, so I will limit the summary in this essay to just one of the recent events, and you will find the rest of the summary on my website. I believe you will find it very interesting.

The event that I would like to tell you about is the recent top. On November 27th, six full days before gold hit its peak and began its subsequent decline, I sent out a Market Alert (it was sent out on the same day that the Premium Update was posted, because I wanted my Subscribers to be able to take action before the marked closes on that day).  I wrote:

If you are still long gold/silver/PM stocks with your speculative capital it may make sense to exit your positions now. As mentioned above, there is a chance that the PM sector would get higher on a short-term basis, but the overnight weakness in metals (…) is a strong bearish signal, so staying out of the market for the next several days/weeks (speculative capital) seems justified. There is an old saying that goes "when in doubt, stay out."

The scenario played itself out according to the script I wrote in the Market Alert. On the day of the alert, November 27th, gold closed at $1,172. It went up for another four trading days to hit a high of $1,224 and to close at $1,207 on December 3rd.  The decline since then is history.

There is no magic in what I do. I have no crystal ball. What I do have is training, knowledge and experience in many of the areas crucial to from the point of view of a Precious Metals Investor: macroeconomics, statistics, (behavioral) finance, monetary policy, risk management, modern portfolio theory, and most of all in studying the charts and interpreting the signals. More importantly, I love what I do and I do it with passion and diligence.

Thank you for having taken this exciting journey with me this year. Thank you for your confidence, and your invaluable feedback. I will strive to read the map for you and guide you through the sometimes treacherous terrain in 2010 as well as I did in 2009.

So, what’s in store for us next year? Let’s turn to the charts to begin to gather the signs and clues (charts courtesy of http://stockcharts.com).

This week I would like to focus on the precious metals stocks.

Metals often move along with the corresponding equities, so it is usually useful to analyze the PM stocks, even if you are not inclined to trade them.

There are virtually no changes in the long-term picture of the HUI Index, so I will just paste my last week's comments, as they are up-to-date also today:

Please take a look at the thin blue lines coming from the same price/time combination. Each of them was pierced, before the final bottom was put in, and this is what I expect to take place this time.

The very long-term support line has just been touched. The HUI Index even moved below it on an intra-day basis, but finally closed above this level. (...) taking the historical performance of the gold stock sector, it seems that PMs will need to move a little lower before putting in a bottom. The short-term chart confirms this.

The cyclical tendencies are not only visible on the silver market, but also in PM stocks (here: the GDX ETF), and the USD Index. On the above chart, they suggest that the next turning point will emerge in January, most likely in its early part. Taking into account the shape and direction of the current move, it seems that this is going to be a bottom.

I've marked the area that I believe that is likely to stop the current decline with a red ellipse. The $40 - $42 level is likely to stop the move, because it includes two support levels that have already stopped declines in the past (in October and November), and also because it would perfectly fit the zigzag shape of the decline - I've noticed that declines on the precious metals market (especially in PM stocks) tend to take this particular form.

Moreover, the Fibonacci retracement level of 61.8% is also within the are marked with red ellipse - just above the $42 level.

The analysis of the PM stocks with emphasis on their performance relative to other stocks provides us with similar implications.

The GDX:SPY ratio describes how did the gold stocks perform versus stocks from other sectors. The ratio has been consolidation through the whole 2009, but that doesn't necessarily mean that the probability that PM stocks will move higher is the same as the probability that the main stock indices will. Why? Because of the fundamentals, which are the thing that drives the prices of every asset class in the long term.

The most important fundamental factor for PM stocks are PM prices (poised to rally), while the fundamental factor for the main stock indices is the health of the world economy. Clearly, the PM stock Investors are better positioned in the long run than Investors purchasing mix of all other shares.

So, why didn't the ratio move higher during 2009? Taking a broader perspective allows me to answer this question. The probable reason is that this ratio has formed a massive rally a year ago, when it moved from below 0.2 to 0.5 in just four months. Such a dramatic move requires a significant breather before a market is ready to move higher.

It currently seems that this ratio will need to move a little lower - to 0.39 level before a bottom is reached. This means that PM stocks and also the rest of the PM market is likely to move lower in the short term.

The last but definitely not the least signal (or rather the lack of the signal) comes from one of our own indicators (designed to signal turning points).

Last week I wrote the following:

Please note that the majority of bottoms were not reached until there was a confirmation from the above indicator. There was no such signal so far, which means that the bottom is likely to be put in the (most likely not too distant-) future, and that it didn't take place yet.

This week we have not seen the confirmation signal either, so it seems that the major bottom is still ahead of us. Once I get a confirmation, I will send out a Market Alert to my Subscribers.

Summing up, the precious metals market is currently in the "close to the bottom" mode. The key question is how close is "close enough for you" to enter the market. The answer depends on your individual preferences. Long-term Investors may want to purchase PMs and corresponding equities right away, regardless of the fact that the bottom may be formed in a few weeks. While this may seem careless at the first sight, I assure you it is not. The calculations behind managing large amounts of money in a strong bull market point to the fact that the true risk is to be out of the market.

To make sure that you are notified once the new features (like the newly introduced Free Charts section) are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading.

Wishing you a happy and very profitable New Year,

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules