Precious Metals Stocks Provide Important Details Regarding The Next Bottom

By: Przemyslaw Radomski, CFA | Tue, Jan 19, 2010
Print Email

This essay is based on the Premium Update posted January 15th, 2010

In the previous essay dedicated to gold and silver we have summarized that the very-long-term price projections are still in place and paint a bullish picture for long-term investors holding gold, silver, and corresponding equities. On the other hand, the short-term outlook remains bearish for the precious metals market.

This week, we would like to provide our thoughts on the precious metals stocks sector. After all, PMs usually move along with the corresponding equities, so analyzing PM stocks is useful even if you are interested in trading / investing in metals only.

Let's begin with the long-term chart of the HUI Index (charts courtesy of http://stockcharts.com.)

Generally, there are virtually no changes in the long-term picture of the HUI Index since we covered this situation previously, so we will just include the previous comments, as they are up-to-date also today:

Please take a look at the thin blue lines coming from the same price/time combination. Each of them was pierced, before the final bottom was put in, and this is what I expect to take place this time.

(...) taking the historical performance of the gold stock sector, it seems that PMs will need to move a little lower before putting in a bottom.

The HUI Index has just moved to the rising support line, so if it manages to break below it, this may mean that the final downleg for this correction has begun. Let's turn to the short-term chart for details.

The analysis of the short-term chart suggests that the PM sector might have already begun the second part of the decline.

First of all, please take a look at the volume, which failed to increase along with higher price on Monday, Jan 11th. The volume did in fact increase, but during the move lower on Tuesday, Jan 12th, which is a subtle clue that these declines are something more than just noise.

We have emphasized in the past that the corrections on the precious metals market often take form of a zigzag, which by itself suggests that another move lower is likely. Moreover, in case of PM stocks, the second part of decline tends to be similar to the first one. Therefore, we have extrapolated the previous move to the current one (assuming that the decline began on Monday), and the result for the GDX ETF is that the bottom is likely to be put in a few weeks at around the $42 level, which is slightly lower than the previous bottom.

Naturally, things may (and often do) change very fast on the market. One of the ways to detect which change may take place is to check what other market might influence prices of a given asset in the future, and then analyze it with appropriate (here: precious metals) perspective.

Our correlations table provides details as far as the strength of the influence from USD Index and the general stock market is concerned. These are the two main driving forces behind the short-term (!) price swings.

In the previous Premium Update we wrote the following:

(...) the fact that in the past 30 trading days PMs moved on average in the opposite direction to the general stock market (which is NOT in tune with the historical norms for PM stocks and silver) is very important. These numbers suggest that right now (!) we should not rely on the signals from the general stock market as far as timing PMs is concerned.

The correlation coefficient for silver and S&P 500 is now positive, but it's so low that it practically equals 0. This means that a breakdown in the general stock market does not need to have a direct influence on the precious metals market. Detailed analysis of the key drivers of PM prices is available to our Subscribers along with the rest of the full version of this essay (3x bigger than this version with many other relevant charts.)

Summing up, precious metals are not reaching new highs since several weeks, so it is understandable that Investors holding gold and silver are discouraged by their favorite asset class' performance, especially that there are signals that this is not the end of the corrective phase. On the other hand, the short-term weakness does not damage the long-term bullish picture for the sector.

To make sure that you are notified once the new features (like the newly introduced Free Charts section) are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

 


 

Przemyslaw Radomski, CFA

Author: Przemyslaw Radomski, CFA

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Investment & Trading Website - SunshineProfits.com

Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer: All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Copyright © 2009-2014 Przemyslaw Radomski, CFA

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/