Beware the Spirit of the Bear
A reader writes, "Nice job on [your recent] article. You upset more than a few people with your positive outlook on XAU for December....The thing that really gets me is when these under-invested people approach me with such hope that gold will get creamed, just for their benefit....one has to ignore several important MA's, namely the 40 and the 200-day in order to buy that outlook, lock, stock n' barrel. I see nothing abhorrent about locking in some profits on good trades, but this panic button approach is driving me up the wall."
Ah yes, the ubiquitous "spirit of the bear" makes his unsavory presence felt yet again, but this time in a place not as commonly seen: the gold stock arena. I ran into this strong bearish "world feeling" (as P.Q. Wall might say) late last year as one who was bullish on the U.S. stock market at a time when virtually every one else was screaming "the sky is falling." The lesson that these super bears had to learn (and one that we all have to learn at some time or another) is that it normally doesn't pay to embrace a bearish posture on the markets. True, there is a time and a place for it, but such times are few and far between. It usually pays to be an optimist when it comes to investing, especially in a liquidity/momentum driven market such as the one we've had since 2003.
Now it seems the "spirit of the bear" is back haunting the gold/gold stock sector these days (despite Halloween being over a month ago). We'll soon find out whether the bears are correct or not, but technical analysis suggests that once again they are standing on the wrong side of the market fence.
So why are so many investors manifesting a bearish spirit on the gold stocks right now despite the XAU, HUI and GOX indices have recently made new highs for the year? Could it be that many mid-tier and junior mining shares are still coming off recent lows and haven't quite picked up a full head of steam yet? Maybe. I believe once widely held stocks such as Royal Gold (RGLD) start moving higher toward, and eventually above, the September highs more investors will wake up to the bullish trend in the sector that has actually been underway for some time.
In the number of 10-week new highs/new lows list of 50 actively traded mining stocks, none made new lows on Thursday, Dec. 1, and eight (8) made new highs. This is a big improvement from a year ago this day, when virtually no new highs were being made. So far, things are looking like the "anniversary date" test we mentioned in Monday's report is going to be passed with flying colors. Among the new highs Thursday were AEM, PDG, AUR:TSX, CEF, FCX, GAM:TSX, IAG, IMN:TSX, and PDG. It usually pays to trade among the stocks that consistently make the list of new 10-week highs, which we update on a daily basis in the Durban Deep/XAU Report.
Earlier this week I updated our bullish outlook on Pan American Silver (PAAS), as the predicted rally to higher highs took place before the recent correction. Traders were advised to take partial profits to lock in gains. As the latest daily chart shows, PAAS is now within kissing distance of the psychological $20.00 resistance level. To date, PAAS has been unable to overcome this important pivot. But now that the 30-day moving average is in the process of crossing above the 60-day MA, this could signal to traders that it's time for a renewed upside breakout attempt for PAAS. We'll still need to keep a close watch on immediate support in the next couple of days due to the recent volatility factor. But PAAS, like its cousin SSRI, does still have the favorable upward momentum factor in its favor.
Recently there has been talk in respectable gold investment circles that Northgate Exploration Ltd. (NXG) is a good low-priced turnaround candidate from both a technical and a fundamental standpoint. Trend and wave form factors would seem to support this positive outlook on NXG, and I note that the dominant interim 30/60/90-day moving average series is locked in a positive configuration in the NXG daily chart. Worth a close look in my estimation.
In a previous gold stock review published in earlier November I indicated to you that Sterling Mining (SRLM) should be nearing a temporary bottom and oversold rally. SRLM recently exploded higher by over 50% in the last four days. This normally happens whenever a decline is overdone on the downside, as was the case for SRLM in its downside "channel buster" exhaustion decline into November.
On a fundamental note, it's interesting that many institutional advisories are slowly starting to cover select blue chip gold shares for their clientele. Even among top-rated investment advisories that cater exclusively to high net-worth investors, select gold shares (such as Freeport Gold) are starting to show up as "buy" candidates where formerly gold stock coverage was virtually non-existent. I view this as an important paradigm shift that could, if persistent, eventually break the gold mining sector out of the long-term mold of being strictly cyclical, defensive stocks. In other words, the gold shares could finally start to enjoy a measure of respectability on Wall Street if this trend keeps up.