By Scott Silva
Editor, The Gold Speculator
4-10-12
Some are calling the bottom for gold mining stocks. One popular measure
for the gold miners is the NYSE Arca Gold BUGS Index, trading on AMEX under the
symbol HUI. The HUI Index was developed with a base value of 200.00 as of March
15, 1996. The AMEX Gold BUGS Index currently consists of 15 of the largest and
most widely held public gold production companies. Other gold miner indices
include the Philadelphia Gold and Silver Index (symbol XAU) comprised of sixteen
precious metal mining companies. The HUI and the XAU each contain several of
the same mining companies, so the indices tend to move together. The HUI and
the XAU are the two most watched gold indices on the market. Let’s look at the HUI from a technical
standpoint to see if the gold mining stocks have bottomed.
Some analysts rely on crosses of the 50-day and 200-day moving averages
as indicators of a trend reversals. We can see the bearish cross back in early
December on the daily basis chart and the subsequent bearish price action in
the HUI then and later in March. The daily chart gives no sign of change to the
bearish trend. According to this indicator, the HUI looks to be headed lower
yet.
The monthly basis chart is not so bearish. In fact, according to the 50-day
and 200-day cross, the HUI has been in bull trend since November 2009. The
March 2012 decline seems to have halted 440, precisely at the 200-day moving
average support level. A break below 440 on the weekly chart would be
significant, indicating a further decline to the 375 support level. So, the
daily chart and the weekly chart yield conflicting views of likely future price
action for HUI.
This is not uncommon for the 50-day and 200-day moving average indicators,
which is why many
traders use Ichimoku Kinko Hyo technical indicators to guide their
trading decisions. As you have read in these pages before, Ichimoku analysis
gives the trader a more accurate view of trends and momentum of any traded
security than other technical trading tools. We use Ichimoku indicators
combined with other technical tools to make trading recommendations for the
Model Conservative Portfolio in The Gold
Speculator investment newsletter. So what does Ichimoku tell us about the
HUI?
We can see from the “one look, equilibrium chart” above, all Ichimoku
indicators for HUI on the daily basis are bearish. The index has been
driven down to support levels four times this year, with the most recent
decline in March and April.
The Ichimoku indicators for the
HUI are bearish on the daily basis chart above and bearish also on the weekly
chart. Price action is below the cloud, which is bearish. The projected cloud
is bearish. The Tenkan Sen made a bearish crossover of the Kijun Sen March 3rd.
And the Chikou Span is below price action and below the cloud which is bearish.
The separate MACD oscillator made a bearish crossover on April 4th.
For the conservative investor,
selecting specific gold stocks has been more effective than buying the index
this year. Shorting the index, on the other hand, has proved effective for the
more aggressive speculator. Bottom feeder speculators may see an opportunity at
current price levels, but the technical trend is bearish, and there is no
technical sign of a reversal in the established bearish trend for this broad
gold stock index.
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