Healthy Correction For Gold Miners And Precious Metals In Secular Bull Market

By: Jeb Handwerger | Tue, Feb 15, 2011
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One of the most difficult decisions an investor must make is to determine if a turning point is of short term or long term consequence. The markets give subtle clues to students of the market of impeding danger and times of caution. A stock's reaction to news items may tell us the authentic underlying strength. In November and December gold, silver and mining stocks sold off China raising rates and now in February shruggs off the news. Is that telling us the correction may be over? A break above the 50 day moving average will bring back the previous gold rus Often times in a secular uptrend news items are planted causing a short term shakeout, which often in retrospect are great buying opportunities. I have learned overtime it is important to look at a long term weekly chart and review the trend. If the trend is a normal healthy linear trend than most times a correction becomes a major buying opportunity.

GDX

Gold miners have put in a short term bottom under $53. A cross above the 10 week or 50 day moving average on volume could

forewarn of a break into new highs. After touching support and reaching oversold levels traders came in and entered the secular bull trend. Mining executives and fund managers believe gold and silver are in a long term bull market. Many of these precious metal majors are sitting on huge amounts of cash and may become the new income stocks as they increase dividends to shareholders in 2011. The large miners are undervalued relative to other sectors and may have a strong 2011 as their profit margins increase. I expect new highs for the large producers and for them to outperform.

GLD Chart

Gold has bounced at our previous buy signal under $130 and has reached a short term overbought condition after reaching multi-year oversold levels. The first bounce after a significant correction may push stochastics into extremes and should be given less importance. I believed gold at under $130 or $1325 spot was an ideal buy as it reached long term support and oversold levels. We must remember that gold is in a secular uptrend and these trends must be given strong weight when making decisions. I believe gold will reach new highs as central banks will be reluctant to raise interest rates in light of high unemployment and mounting debt fears. I expect further debt issues to resurface globally and for investors to seek out real money-gold and silver. Look for gold to hold the 50 day moving average pushing a lot of bears who were expecting a steeper correction to occur, move back into gold causing it to reach new highs.

Using a simple set of trend channels one can assess the risk at key market turning points. For four months while investors were chasing gold at resistance my readers were becoming aware of key sectors and stocks which doubled and during that time especially in uranium and molybdenum. Many investors left precious metals for riskier assets in energy, rare earths and base metals. Now gold and precious metals mining stocks seem to have found support and are making a leg higher despite fears of rising rates in both the USA and China to combat rising prices of basic goods and commodities. Investors are realizing that interest rates will not keep deter this economy on steroids. President Obama does not appear to be cutting spending as our deficits soar into new record territory and we may be setting ourselves up for QE3 if yields continue rising.

 


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Jeb Handwerger

Author: Jeb Handwerger

Jeb Handwerger
http://goldstocktrades.com

Jeb Handwerger

I started reading charts at eleven years old. One day my father, a market trader and technician found his library of books on technical analysis mysteriously disappearing. He later found the textbooks under my bed. For many years day and night I studied technical analysis and charting, working and learning from my father who has over 50 years of trading experience. Technical analysis is my passion and love.

In 2001, I started noticing the junior mining stocks and gold as having a tremendous upside. For the past 9 years I have researched many juniors and have identified the major winners using technical analysis and finding top management.

I earned a Bachelors Degree in Mathematics and a Masters Degree. I learned most of my technical analysis from the school of hard knocks, managing real money for myself and for my family.

Constantly perfecting my craft, I have traded for two decades of success in many different markets. I have been asked to post ideas to some of my students who have taken my course in charting and technical analysis. I have made an excellent living trading stocks for myself.

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