Silver and Gold Stock Momentum Considerations
The XAU gold/silver index made an overdue pullback on Tuesday, Mar. 28, closing for the day at 134.17, down 2.24%. The other major gold stock indices were down by similar percentages for the day but still closed well above their recent lows and also above the key short-term moving averages.
Taking into consideration the dominant short-term trends, the gold stock sector is still in recovery mode and has some leeway for a correction right now without going back immediately into the "danger zone." Of the five leading trend identifiers of the sector - XAU, HUI, GOX, GLD and FCX - all five are above the important 90-day moving average right now and all except the XAU are even above the 30-day and 60-day moving averages. This is a sign that the dominant trend is still up and as long as at least three out of the five remain above the 90-day MA I consider the dominant uptrend/bias to be still intact.
Even after Tuesday's pullback there were only seven on my list of 50 actively traded gold shares below the 15-day moving average. That's a very light reading and we've now seen three consecutive days when the number of gold stocks below the 15-day MA has been fewer than 10. Another couple of days of these low readings and it will confirm a short-term bottom for the gold stock market as a whole.
Another measure of the gold stock sector's short-term overbought/oversold condition is the 50-day MA indicator. This is simply a measure of how many gold stocks in our list of 50 are below the 50-day moving average as of Friday's close. On Friday, March 10, there were 27 out of 50 gold stocks below the 50-day MA, the highest 50-day MA reading since the October low in the gold stock sector. On Friday, March 17, that number was 25, and on Friday, March 24, the reading was 19. That's a drop from the past couple of weeks but it still reflects an "oversold" market condition that hasn't been completely worked off yet. The 50-day MA indicator points to continued support in the gold stock sector in the near term.
Among the actively traded gold stocks to watch for rally potential in the near term include Angogold (AU), American Bonanza (BZA:TSX), ASA Bermuda (ASA), and Goldcorp (GG).
An up-and-coming mining company worth keeping an eye on is Quaterra Resource Inc. (QTA:TSXV). According to a company representative, QTA is working on uranium right now and hopes to have some positive results to report soon. Work on gold will begin in May and the results of their latest silver program should be available next month, he said. Quaterra's President and CEO, Dr. Tom Patton, recently spoke at the Richmond Club on the company and his presentation can be found online at the following web address: http://www.richmondclub.com/QuaterraResources.asp
Of the 50 actively traded gold shares, three managed to make new highs on Tuesday with none of the 50 making new lows. The 5-day, 10-day and 20-day and 30-day HILMO indicators for the gold stocks made marginally higher highs Tuesday with only the 60-day MA continuing its recent weakness. The 60-day HILMO indicator remains the one concern for the short-term health of the gold stock market. It continues to decline since peaking back in earlier February; however, it is still well above where it was at the beginning of this year and hasn't reached what I consider to be bear market levels yet.
Silver stock internal momentum, on the other hand (as measured by our SS HILMO (Silver Stock Hi-Lo Momentum) indicator -- see chart above) rose to higher levels after the recent good showing by the silver sector, and is reflecting greater strength compared to the gold stocks. The 5-day SS HILMO indicator rose from Friday's reading of +22 to +36. The 10-day indicator rose from +38 to +52. And the 20-day indicator rose from +79 to +90. That's perhaps a little "overbought" but still an overall bullish reading and reflective of the greatly improved silver stock internal momentum. The SS HILMO indicators as described paint a picture of the silver stock sector being still strong enough overall to withstand any corrective pullbacks in the short-term.