Thomas
DeChastelain
Memorial Archives

HUI Update
posted Dec 4, 2004 at 02:44PM

Introduction

The underperformance of gold equities continues.

HUI Daily



The HUI is on a confirmed short-term sell condition. 220 is the key short term support line.

HUI/Gold Ratio



Has broken through critical moving average and pivot support. From an EWA perspective it's recent down-move nullifies the impulsive count.

TSE Gold Index/Gold Ratio



Critical trend-line support coming up.

Notes

Is all lost? No, but there are lots of ominous signals popping up all over the place. The most evident is the poor price action of gold equities. Just the slightest weakness in bullion prices had gold stocks tumbling across the board.

Worse, althogh bullion completely recoverd to reclaim its highs, the HUI barely budged. What gives? I really don't know. But the current price action says that there is a considerable risk premium to holding gold stocks. Even if bullion did a retest of $430, gold stocks could continue to take a rather painful haircut.

Oil does look to be in the midst of a major level correction that has yet to complete. Also, as James Mound pointed out, the Canadian dollar is diverging from the USD ... dropping in price even as the USD moved to new lows. This price action implies that the USD is reaching some kind of firm IT bottom.

In the end it doesn't matter..price action is the final determinant, and the price action of a lot of gold stocks has been bearish. In my opinion the recent price action in golds also has bearish implication for base metal stocks
and to a lesser extent the oils.

If bullish forces do reassert themselves then this should show up in the HUI/Gold ratio.

Although aggressive traders may want to try to bottom-pick or go for a short term "stochastics" bounce trade - I think this strategy is filled with more than the usual risk. With the dollar so oversold, and bullion overbought I find myself reticent of getting too agressive here. What angst I felt about putting too much importance on the 240 swing line has disappeared.

Personally I am thinking of waiting for at least a MACD cross on the HUI before reentering. Obviously I would like to see the HUI/Gold ratio get back above moving average support.

To me this is not a good place to be a short-term contrariarian. I would rather buy on strength at higher prices, but with the evidence that an impulsive rally is underway.

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