Unlock Gold and Silver Profits with Technical Analysis
Commodities / Gold and Silver 2010 Feb 17, 2010 - 09:06 PM GMTBy: The_Gold_Report
Which camp are you in, inflation or deflation? While Mr. Market labors under the pressures of both and the burgeoning weight of artificial stimuli, Clive Maund, a 30-year veteran of technical analysis, is positioning himself for gains either way. "Properly used," he says, "technical analysis does not require the use of other inputs to be effective." In this enlightening interview with The Gold Report, Clive extols the virtues of the age-old practice as a reliable predictor of future stock price movement in any economic environment.
The Gold Report: You have practiced technical analysis (TA) since the late 1970s. On a simple level, explain why TA is a reliable predictor of future stock price movement?
Clive Maund: Because the latest price of a stock is the summation or distillation of all fundamental information that is known about the company. In the earliest stages of a major uptrend, it is only the "smartest money"—that is to say those in possession of the best intelligence that are on to the improving fortunes of the company—and they may well be insiders. Technical analysis detects their buying at a time when the reason or reasons for it is not yet known. The average retail investor, who is at the bottom of the "food chain" will be the last to learn the good news, when it is broadcast by the mainstream financial media, usually as the stock is about to top out towards the end of a bull run.
TGR: How is the average investor to make money? From your answer, it seems the deck is stacked against the average investor?
CM: The average investor must learn to break the habit and the common mistake of going after stocks that have already made substantial gains and for which the news is already rosy, chasing popularity. The time to accumulate stocks is when they are oversold but have stabilized and the fortunes of the company are just starting to improve.
TGR: As a technical analyst, do you analyze and incorporate economic trends into your projections? In other words, do you rely on the output of TA for your stock trades or do you use the output as one factor of many in making predictive stock judgments?
CM: Properly used, technical analysis does not require the use of other inputs—such as the analysis of economic trends—to be effective. Having said that I do study the major forces driving the markets, such as debt levels and quantitative easing (otherwise known as manufacturing money), as these do give some additional clues with regard to timing.
TGR: You study debt levels and quantitative easing. What about unemployment and GDP, which are more widely discussed in the popular press?
CM: Unemployment and GDP are symptoms of the genuine health of the economy and thus of crucial importance. The term "jobless recovery" is an oxymoron and just spin. The key point to grasp is that the stock market has been rising not because of economic improvement but because it has been driven up by manufactured money and the resulting fear of inflation.
TGR: Many analysts/pundits are predicting another downturn for the markets and international economies—some argue inflation is pending and some believe deflation is imminent. What is your viewpoint on the direction of the markets and economies?
CM: This is a crucially important question. The lives and fortunes of billions of people depend on how the inflation/deflation issue plays out. The key point to understand is that the background dynamic is highly deflationary, but as politicians and business leaders do not want to face the grim consequences of deflation, which at best could result in their losing office and their positions of privilege and at worst could result in them losing their lives or being sent into exile, they can be relied upon to resist deflation tooth and nail.
Deflation "broke out of its cage" in 2008 and the result was a devastating collapse in the markets. They beat it back into its cage with a combination of bailouts, quantitative easing and monetization to prevent asset classes such as bonds from failing. The end result of this interference with, and obstruction of the natural corrective forces of the free market, is that debt has reached astronomic levels, arriving at the point where it is unserviceable.
This can result in one of two outcomes: 1) default and economic implosion, or 2) runaway inflation leading to hyperinflation. As the latter will buy more time for politicians and business leaders, this is the road that they can be expected to take. However, if deflationary forces overwhelm them, possibly due to calamities in other parts of the world, such as a collapse of the European Union or China imploding, we could see a depression in the U.S.
TGR: So the only outcomes for the U.S. is hyperinflation or depression? How does the average investor manage a portfolio with such divergent outcomes?
CM: As long as inflation has the upper hand, which the recent action of the Commercials (banks and institutions) in scaling back their short positions (as revealed by COT—Commitment of Traders-figures) demonstrates continues to be the case, investors can look forward to advancing commodity and stock markets. The big danger for investors is deflation. With regard to this major risk we use Technical Analysis to assist investors in identifying the onset of major bear market phases such as the 2008 meltdown as soon as possible, so that they can get out of harm's way by either moving to cash or short-expiry Treasuries, or hedge positions that they continue to hold.
TGR: You are now engaged in private trading utilizing the Internet and online trading tools. Do you think the speed which with Internet trades can be made has changed stock market dynamics? Has it created a new breed of trading that is based on intraday market-trading trends rather than a company's or economy's fundamentals?
CM: The Internet has definitely increased the speed of reaction of individuals and the market to news announcements and to emerging trends, so that it is now almost instantaneous. Those closest to the market are, of course, able to front run market moves, and can "scalp" substantial profits by so doing.
TGR: In your online bio, you state: "We are set to witness the most exciting time in the energy and precious metals sectors since the mid-1970s" caused by gross excesses of the global fiat money system. Can you elaborate?
CM: Excesses in the fiat money system automatically lead to inflation as larger amounts of money chase the same or a finite quantity of goods and services. In an inflationary environment, money naturally gravitates to assets or commodities that are real and have intrinsic value, such as oil, gas and also uranium, and will hold that value by rising in price as the value of currencies is eroded by inflation.
TGR: Is this logic true for other sectors such as food or consumer staples? If so, what makes energy a better investment opportunity?
CM: Yes it is, but what makes energy a better investment is that it is finite and depleting and is perceived to be so, especially in a world of rising population and expanding demand. You have all heard about Peak Oil that, if true, must result in a continuing long-term uptrend in the price of oil.
TGR: What do you see for gold and silver prices for the next six months? If precious metals are being acquired more as currency and less for jewelry, do you see the typical seasonality for gold being eliminated this year or in future years?
CM: This is a difficult question to answer because if deflation breaks loose again, which could happen if there are sovereign defaults, the Chinese economy implodes or rates enter a determined uptrend, we could see another severe bear market emerge in a wide range of asset classes, including precious metals. On www.clivemaund.com, we play the trend and listen to the message of the market.
Currently, gold is in a downtrend that started early in December. However, this downtrend is showing a marked convergence—meaning that it could be what is known as a "falling wedge," which is a bullish pattern. If it breaks out upside from this pattern, we will go long with a close stop because it could lead to a powerful advance. On the other hand if it drops below the strong support in the $1,000 –$1,030 area, the decline could accelerate to the downside.
The situation is complicated as silver recently broke down from a major uptrend and its rally from oversold since last weekend, which we expected, looks at this stage like nothing more than a pullback following a breakdown that will be followed by renewed decline.
Copper looks bearish, too, with a severe breakdown several weeks ago, also predicted on the site a few days before it began, followed by a sharp recovery back towards the underside of its downtrend where we would expect it to roll over and head south again. Our approach is pragmatic—we position ourselves for big gains but have close exit points to limit losses if market action proves our judgment to have been incorrect. Thus, if gold breaks above $1,100 over the short term we will probably go long with a close stop. But if gold rises up to its upper-trend channel, and at the same time silver and copper rise up close to the underside of their failed uptrends and all three start to roll over, then we will probably short all of them with close overhead stops.
TGR: What companies do you feel represent opportunities for growth?
CM: Broadly speaking, the precious metals sector is viewed as providing outstanding growth opportunities. We are likely to see the current bull market end with a spectacular parabolic blow-off move that certainly hasn't happened yet. The complicating factor now is that we may see another deflationary scare similar to 2008 first, which would clearly be ruinous for anyone long the sector. This is why it is considered wise to wait to see if gold can break out upside from its current potential falling wedge pattern before going long. The uranium sector is similar, but we will want to see prices of uranium stocks start to advance away from clearly defined base areas before taking positions.
That said, I believe the chart for Timmins Gold Corp. (TSX.V:TMM) is a positive chart with a broad uptrend and rising 200-day moving average (MA). Nice bull hammer in Timmins last Friday, which has strong underlying support above its 200-day MA. If gold breaks out upside from its current wedge pattern Timmins should take off with it.
Kent Exploration Inc. (TSX.V:KEX) is in a broad uptrend with bullishly aligned moving averages. Bull hammer in Kent last Friday, when it looks like it may have hit a cyclical low. On an upside breakout by gold, it should run up to recent highs at about 24 cents and could carry on somewhat higher.
Evolving Gold (TSX.V:EVG, FSE:EV7) got slammed by a recent share issue and knocked down to a clear and strong support level at about 90 cents at the lows of last October into November. Although still somewhat overhung by this development, it looks like a buy here with a close closing stop beneath the support, say at about 87 cents.
Paramount Gold and Silver Corp. (NYSE/TSX:PZG) appears to have been consolidating since last May forming the handle of a large pan and handle pattern. Moving averages are in bullish alignment and volume pattern is positive, so it should take off on another upleg if gold breaks out upside.
The chart for Pediment Gold Corp. (PEZ:TSX; PEZGF:OTCBB; P5E:FSE) is a favorable picture with the overall trend up and bullishly aligned moving average. The volume pattern is positive and it is no longer overbought after its recent reaction. Should gold break out upside it is in a good position to stage a substantial rally from this point.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003 early in the sector bull market. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London and holds a Diploma in Technical Analysis from the UK Society of Technical Analysts. Clive now lives in southern Chile.
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DISCLOSURE:
1) Karen Roche, of The Gold Report, conducted this interview. She personally and/or her family own none of the companies mentioned in this interview.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Avalon Rare Metals; Revett Minerals, Goldcorp.
3) Michael Berry—I personally and/or my family own the following companies mentioned in this interview: Senesco Technologies, Goldcorp, Quaterra Resources, and Galway Resources.
I personally and/or my family am paid by the following companies mentioned in this interview: Revett Minerals.
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