Thomas
DeChastelain
Memorial Archives

Bullion Charts and Commentary
posted Apr 8, 2006 at 01:03PM

Bullion Daily



Everything looks reasonable here

Bullion Weekly



I don't like this chart

HUI/Gold Ratio



This key ratio is still, formally, in bullish territory, but I do not like that divergence. It gets the contrarian spidey senses tingling.

Intermarket Analysis Charts

The point of these charts is to show how, in the end, you have the trade the chart of whatever you are trading, and not the charts of what it may be "connected" to.

Some analysts, who rank high in the hiearchy of gold punditry, made correct calls in the bull rally of the dollar. As a consequence they were making calls for bullion to reach 375. Only by keeping one's eye focused on the actual gold chart, would have told you that this was not going to happen.

Gold vs USD



HUI vs Yield Spread



This is perhaps the most bullish chart in the complex. The performance of the HUI in the face of increasing rate environment has been nothing short of spectacular.

Again there are people who made correct calls on a dropping yield spread, but did not make their bets in that area, instead choosing to make negative bets on gold stocks.

Now I do look at these charts, but mostly I am looking for divergences. If you remember back to last May, it was the relative strength of gold and equities in the face of a rising dollar and dropping yield spread that had me making big bets in favour of gold.

(Of course, history went on to show I should have hung on more tightly but I have already covered that in detail)



Consider this from the viewpoint of someeone who has tracked silver for the past year and is only now considering to buy in. I am sorry but there are only two types of money coming in now. Some of it will from higly sophisticated, highly liquid traders with money to burn, and the dumb stupid money they are trying to take advantage of.

The Joe six-packs who decide to play it cute by shorting or entering new positions are just setting themselves up to get killed. Silver is in "go parabolic or die mode". This is not trading, much less "investing", but down to raw gambling.

Discussion

Well, if strapped to the chair under a naked light bulb and forced to give an "opinion" on what I think the gold sector is going to do ... Well I think next week will be a down week. I think gold will do some consoidation and retracement of "wave 4" variety. Bullion will then complete a move by heading up to 620-625 whereupon a more significant correction will take place.

Trading Notes.

It is important to realize not all stocks will move in concert with gold. Some will "top" earlier and perhaps some later. Some may have well already topped. I would expect bearish divergences to appear on advancer/decliner charts.

Again what you do is dependant on what your circumstances are. If you are in longstanding positions that are firmly in the green, there there is nothing out there that tells me that there is a problem with the overall status of the bull market and you may not want to take the risk of trying to time retracements.

If you are someone who has never bought a gold stock well then this is not the best technical condition to make long-term strategic "investments".

As for myself, I raised some cash during the latter part of the week. I sold trading positions in gold as well as some energies. I maintain a long-standing positions in the junior oil-sands sector.

I have no "big picture" rationale for raising cash...it is more a portfolio management thing. I was looking at the copper chart, the silver chart and they are overextended to my eyes. A lot of the individual stock charts I look at, I simply would not touch on a technical basis. That and I was presented with selling opportunities ... so there you go. I just wanted to have more cash in case the "things" sector cools off.

My vehicles of choice and interest are definitely way down the quality food chain. Highly speculative explorers, penney stocks that can "pop" in percentage terms over short periods of time. The stuff that tends to move at the end of major moves. I will look to pick bottoms of consolidation patterns and I definitely enter with tight stops and an eye on market depth. It is the kind of trading you do when you don't want to get a job, but the wife wants a new washer/dryer.

Good trading.

Bullet Bullet Bullet