Some Strength Early Today Wasn't Surprising
Some strength early today wasn't surprising, given a very bullish NEM Lead Indicator recently (+1.01% versus the XAU on 12-8, +0.87% on 12-7, +0.27% on 12-6, +1.19% on 12-5) and the fact that NEM's minor intermediate term downcycle, if NEM peaked at 47.80 on Friday, was likely to begin relatively flat. Given how bullish the NEM Lead Indicator has been recently, today's strength was modest, which is a bearish sign.
The XAU Put/Call Ratio (December expiration) fell a very sharp -3.03% to 0.95966 today/on 12-11 from 0.98969 on 12-8, which portends potentially severe weakness after today's early strength (correctly indicated by Friday's very bullish NEM Lead Indicator at +1.01% versus the XAU).
XAU Implied Volatility points to some significant weakness today: XAU Implied Volatility rose less in percentage terms (rose +1.00% to 30.690 on 12-8 from 30.385 on 12-7 ) than the XAU fell on Friday (-1.73%), which is a significant (0.50-1.99%) rise in complacency that points to some significant weakness on Monday (+1.00% + -1.73% = -0.73% decline in the XAU wall of worry = +0.73% rise in complacency).
HUI a 2% follow through minor intermediate term cycle sell signal on 12-7, see chart one at http://www.joefrocks.com/GoldStockCharts.html, two sessions after a minor intermediate term cycle high occurred early on 12-5 (XAU also), for the cycle that began 10-4-06. Note the Elliott Wave patterns and that shorter Elliott Wave patterns occurred leading up to Wave 1, 3, and 5 cycle highs. The Elliott Wave 12345 upcycle patterns leading up to the Wave 3 and 5 cycle highs take some effort to see, but they're there.
HUI/XAU's technical indicators such as RSI and Stochastics are clearly on sell signals (are trending sharply lower) and the latest COT (Commitments Of Traders) data clearly points to weakness as the tone/trend next week, with the non contrarian gold Commercial Traders trading significantly net short, while the contrarian gold Speculators traded significantly net long, see http://www.cftc.gov/dea/options/deacmxsof.htm. The gold COT data is probably more bearish than it seems, because the gold Commercial Traders engaged in massive long liquidation the prior week, which lessened the need to liquidate last week, AND, the short covering they did was probably the last part of the massive short squeeze they got caught in the week before, so the short covering probably isn't a modestly bullish sign that would normally point to some significant strength next week.
Reliable lead indicator NEM's minor intermediate term upcycle since 10-4-06 is extremely flat/has rolled over dramatically, and, it's monthly upcycle since mid November is very flat, the peaks have flattened out/rolled over dramatically. NEM appears to have hit a minor intermediate term cycle high at 47.80 on 12-8, but, it has an upside gap at 48.19 that may but probably won't get filled short term.
In the next 3-6 weeks HUI/XAU should do exactly what reliable lead indicator NEM has already done, which is to decline to their primary multi-year Secular Bull Market/very long term upcycle trendlines, currently at 200-220ish (could turn up which is why there's a wide range) for HUI and at 85-90ish for the XAU, see charts 6 and 8 at http://www.joefrocks.com/GoldStockCharts.html. NEM did a Wave A down, a Wave B up, then it's Wave C did an ABC down up down pattern, which is exactly what HUI/XAU appear to be doing, with Wave C of Wave C probably having begun Tuesday 12-5.
The XAU has downside gaps at 141.59, 138.37, and 132.67. NEM has downside gaps at 45.73, 44.88, 44.03, 42.21, 41.83, 41.09, and 40.83.
SPX's short term (http://finance.yahoo.com/q/ta?s=%5Espx&t=5d&l=off&z=l&q=c&p=&a=m26-12-9%2Cp12%2Cfs%2Cw14&c==) and minor intermediate term upcycle (since mid June) are rolling over, so HUI/NEM/XAU weakness should intensify due to program trader/index fund selling.
A comment on chart four at http://www.joefrocks.com/GoldStockCharts.html. The Wave 2 Cyclical Bear Market (began 5-11-06) downtrend line shown wasn't a well established downtrend line (only one lower cycle high) and the required 5% follow through for a major buy didn't occur, so, the fact that HUI/XAU broke that downtrend line isn't important.
Note how, due to program trading, HUI follows SPX closely on the five day intraday chart and for longer cycle timeframes as well (short term and intermediate term SPX tends to have a huge influence), see http://finance.yahoo.com/q/ta?s=%5EHUI&t=5d&l=off&z=l&q=c&p=&a=m26-12-9,p12,fs,w14&c=%5EGSPC.
Substantial SPX (S & P 500) weakness over the next 3-6 weeks will probably play a huge part in HUI/XAU's vicious decline due to index fund program trading. SPX is the primary lead index for program trading. As SPX components like NEM/FCX get sold they affect other indexes, like HUI/XAU, which leads to selling of the components in those indexes.
SPX is in the process of putting in a minor intermediate term cycle high for the cycle since mid June. SPX's peaks are flattening out/rolling over, it's technical indicators are overbought, and, they're diverging with SPX/price since late October (look at SPX's peaks versus RSI, Stochastics, Williams %R, MACD).
As a long term (multi year)/very long term (multi decade) investor one should ALWAYS buy near the primary multi year or multi decade uptrend line. The shorter parabolic upcycles are great trading opportunities NOT long term investing opportunities. The many gold writers who think investors should have been buying gold recently are clueless, because gold's primary multi year uptrend line since April 2001 is at 525ish right now, and, more importantly, gold has been in a Wave 2 Cyclical Bear Market since mid May.
HUI/NEM/XAU should be in Wave A down of the likely 3-6 weekish vicious 35-45%+ decline for HUI/XAU. HUI/XAU may have entered Wave C of Wave C (Wave C is probably doing an Elliot Wave ABC down up down pattern), in which HUI/XAU may experience a vicious 3-6 weekish 35-45%+ decline that should mark the end of their Wave 2 Cyclical Bear Market (began 5-11-06). They should decline to or at least approach their Secular Bull Market/very long term upcycle trendlines at 200ish for HUI (the trendline could turn up to 220ish since HUI is more parabolic/volatile than the XAU) and at 90ish for the XAU, see charts 6 and 8 at http://www.joefrocks.com/GoldStockCharts.html.
HUI/XAU's Wave 2 Cyclical Bear Market began 5-11-06, see charts 6 and 8 at http://www.joefrocks.com/GoldStockCharts.html. NEM's Wave 2 Cyclical Bear Market that began on 1-31-06 ended on 10-4-06 at 39.84, so, reliable lead indicator NEM is probably in a 5 yearish Wave 3 Cyclical Bull Market since 10-4-06, see chart 7 at http://www.joefrocks.com/GoldStockCharts.html. ....... http://www.JoeFRocks.com/ .
HUI NEM XAU
The XAU Put/Call Ratio (December expiration) fell a very sharp -3.03% to 0.95966 today/on 12-11 from 0.98969 on 12-8, which portends potentially severe weakness after today's early strength (correctly indicated by Friday's very bullish NEM Lead Indicator at +1.01% versus the XAU).
XAU Implied Volatility points to some significant weakness today: XAU Implied Volatility rose less in percentage terms (rose +1.00% to 30.690 on 12-8 from 30.385 on 12-7 ) than the XAU fell on Friday (-1.73%), which is a significant (0.50-1.99%) rise in complacency that points to some significant weakness on Monday (+1.00% + -1.73% = -0.73% decline in the XAU wall of worry = +0.73% rise in complacency).
HUI a 2% follow through minor intermediate term cycle sell signal on 12-7, see chart one at http://www.joefrocks.com/GoldStockCharts.html, two sessions after a minor intermediate term cycle high occurred early on 12-5 (XAU also), for the cycle that began 10-4-06. Note the Elliott Wave patterns and that shorter Elliott Wave patterns occurred leading up to Wave 1, 3, and 5 cycle highs. The Elliott Wave 12345 upcycle patterns leading up to the Wave 3 and 5 cycle highs take some effort to see, but they're there.
HUI/XAU's technical indicators such as RSI and Stochastics are clearly on sell signals (are trending sharply lower) and the latest COT (Commitments Of Traders) data clearly points to weakness as the tone/trend next week, with the non contrarian gold Commercial Traders trading significantly net short, while the contrarian gold Speculators traded significantly net long, see http://www.cftc.gov/dea/options/deacmxsof.htm. The gold COT data is probably more bearish than it seems, because the gold Commercial Traders engaged in massive long liquidation the prior week, which lessened the need to liquidate last week, AND, the short covering they did was probably the last part of the massive short squeeze they got caught in the week before, so the short covering probably isn't a modestly bullish sign that would normally point to some significant strength next week.
Reliable lead indicator NEM's minor intermediate term upcycle since 10-4-06 is extremely flat/has rolled over dramatically, and, it's monthly upcycle since mid November is very flat, the peaks have flattened out/rolled over dramatically. NEM appears to have hit a minor intermediate term cycle high at 47.80 on 12-8, but, it has an upside gap at 48.19 that may but probably won't get filled short term.
In the next 3-6 weeks HUI/XAU should do exactly what reliable lead indicator NEM has already done, which is to decline to their primary multi-year Secular Bull Market/very long term upcycle trendlines, currently at 200-220ish (could turn up which is why there's a wide range) for HUI and at 85-90ish for the XAU, see charts 6 and 8 at http://www.joefrocks.com/GoldStockCharts.html. NEM did a Wave A down, a Wave B up, then it's Wave C did an ABC down up down pattern, which is exactly what HUI/XAU appear to be doing, with Wave C of Wave C probably having begun Tuesday 12-5.
The XAU has downside gaps at 141.59, 138.37, and 132.67. NEM has downside gaps at 45.73, 44.88, 44.03, 42.21, 41.83, 41.09, and 40.83.
SPX's short term (http://finance.yahoo.com/q/ta?s=%5Espx&t=5d&l=off&z=l&q=c&p=&a=m26-12-9%2Cp12%2Cfs%2Cw14&c==) and minor intermediate term upcycle (since mid June) are rolling over, so HUI/NEM/XAU weakness should intensify due to program trader/index fund selling.
A comment on chart four at http://www.joefrocks.com/GoldStockCharts.html. The Wave 2 Cyclical Bear Market (began 5-11-06) downtrend line shown wasn't a well established downtrend line (only one lower cycle high) and the required 5% follow through for a major buy didn't occur, so, the fact that HUI/XAU broke that downtrend line isn't important.
Note how, due to program trading, HUI follows SPX closely on the five day intraday chart and for longer cycle timeframes as well (short term and intermediate term SPX tends to have a huge influence), see http://finance.yahoo.com/q/ta?s=%5EHUI&t=5d&l=off&z=l&q=c&p=&a=m26-12-9,p12,fs,w14&c=%5EGSPC.
Substantial SPX (S & P 500) weakness over the next 3-6 weeks will probably play a huge part in HUI/XAU's vicious decline due to index fund program trading. SPX is the primary lead index for program trading. As SPX components like NEM/FCX get sold they affect other indexes, like HUI/XAU, which leads to selling of the components in those indexes.
SPX is in the process of putting in a minor intermediate term cycle high for the cycle since mid June. SPX's peaks are flattening out/rolling over, it's technical indicators are overbought, and, they're diverging with SPX/price since late October (look at SPX's peaks versus RSI, Stochastics, Williams %R, MACD).
As a long term (multi year)/very long term (multi decade) investor one should ALWAYS buy near the primary multi year or multi decade uptrend line. The shorter parabolic upcycles are great trading opportunities NOT long term investing opportunities. The many gold writers who think investors should have been buying gold recently are clueless, because gold's primary multi year uptrend line since April 2001 is at 525ish right now, and, more importantly, gold has been in a Wave 2 Cyclical Bear Market since mid May.
HUI/NEM/XAU should be in Wave A down of the likely 3-6 weekish vicious 35-45%+ decline for HUI/XAU. HUI/XAU may have entered Wave C of Wave C (Wave C is probably doing an Elliot Wave ABC down up down pattern), in which HUI/XAU may experience a vicious 3-6 weekish 35-45%+ decline that should mark the end of their Wave 2 Cyclical Bear Market (began 5-11-06). They should decline to or at least approach their Secular Bull Market/very long term upcycle trendlines at 200ish for HUI (the trendline could turn up to 220ish since HUI is more parabolic/volatile than the XAU) and at 90ish for the XAU, see charts 6 and 8 at http://www.joefrocks.com/GoldStockCharts.html.
HUI/XAU's Wave 2 Cyclical Bear Market began 5-11-06, see charts 6 and 8 at http://www.joefrocks.com/GoldStockCharts.html. NEM's Wave 2 Cyclical Bear Market that began on 1-31-06 ended on 10-4-06 at 39.84, so, reliable lead indicator NEM is probably in a 5 yearish Wave 3 Cyclical Bull Market since 10-4-06, see chart 7 at http://www.joefrocks.com/GoldStockCharts.html. ....... http://www.JoeFRocks.com/ .
HUI NEM XAU
Labels: Gold, Gold Stocks, HUI, NEM, Silver, Silver Stocks, SPX, XAU
posted by Joe Ferrazzano at
7:32 AM
