Tuesday, May 22, 2012

Another Hike for Gold

By Scott Silva

Things may be looking up for gold bugs. The sellers are gone, and the bargain hunters have returned. Is this the reversal gold bugs have been waiting for? Or is it a short term bounce only to be followed by another leg down? Technical analysis says we may be seeing the beginning of another powerful upswing for the precious metals and gold and silver stocks.

Gold and silver stocks have been under pressure over the last several weeks. But we now are seeing signs of a bullish reversal. A look at the technical indicators for the HUI gold stock index gives us the first hint. The indicators we will examine here are Ichimoku Kinko Hyo, candlestick analysis and Moving Average Convergence/Divergence (MACD). Taken together, these technical indicators provide a degree of corroborated information from which to trade.

So let’s look what these three technical indicators are telling us about the HUI. We can see from the daily basis chart that on May 16th, the HUI halted its slide begun earlier this month, and has traded up in the last several sessions. Price action on May 16th produced a doji candlestick. The doji typically marks a reversal in an established trend. The doji candlestick has a long shadow and a small body, which traces out the push and pull between buyers and sellers, and reflects the fact that neither buyers nor sellers dominated the day’s trading. We can see that the May 16th doji in fact marked a bullish reversal at the 376.86 level. The long white candle on May 17th and following sessions pushed the HUI up to 412 or so.

The next set of indicators to examine is Ichimoku trend and momentum. Today, most Ichimoku indicators are bearish, but there are some bullish signs. Price action is below the cloud, which is bearish. The projected cloud is bearish (shaded pink) with Span A below Span B. And the Chikou Span (green trace) is below price action and the below the cloud, which is a bearish signal. Yesterday, price action climbed briefly above the Kijun Sen (red trace), which is a bullish sign. The Chikou Span, the momentum indictor, has made a move up, and could climb up to the breakout area covering the 420-470 price levels. In this area, the Chikou Span would be above price action, which would be a strong bullish indicator. From there, price action could break above the cloud at 444, the projected resistance level. By then, the projected cloud would be bullish as well.

The near term dynamic displayed by the MACD shows that the breakout scenario may in play already. The MACD shows the HUI to be oversold, with an index bottoming out at -20.0 on May 16th, then making a bullish crossover on May 21st.

Aggressive traders use MACD crossover signals to buy and sell. More conservative traders are happy to wait for the trend to develop fully, as indicated by all five Ichimoku indicators before committing capital. There are trading rules and strategies that combine Ichimoku with other technical indicators that work well in volatile markets. Aggressive and conservative investors alike can benefit from technical analysis of gold and gold silver stocks. Our analysis of the HUI is telling us we may be seeing blue skies for gold and silver stocks soon.

Responsible citizens and prudent investors protect themselves and their wealth against the ambitions of over-reaching government authority and debasement of the currency by owning gold. Gold is honest money. Investors from around the world benefit from timely market analysis on gold and silver and portfolio recommendations contained in The Gold Speculator investment newsletter, which is based on the principles of free markets, private property, sound money and Austrian School economics.

The question for you to consider is how are you going to protect yourself from the vagaries of the fiat money and economic uncertainty?  We publish The Gold Speculator to help people make better decisions about their money. Our Model Conservative Portfolio has outperformed the DJIA and the S&P 500 by more than 3:1 over the last several years. Follow @TheGoldSpec   Subscribe at our web site www.thegoldspeculatorllc.com  with credit card or PayPal ($300/yr) or by sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua St. #142 Milford, NH 03055

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