Tuesday, May 21, 2013

Gold and Gold Stocks, Part One – Technical Overview

Still No Joy in Gold-Land
Below is a brief technical overview in view of last week’s action in the gold sector. Gold stocks have continued to lead to the downside, something they have done throughout the bear phase to date. Thus the HUI index ended the week at a new low for the move, below the lows put in concurrently with gold’s crash low in mid April. This obviously constitutes a technical divergence, but such divergences have as a rule been a sign that still more declines lay ahead. It would be different if the divergence ran the other way around – i.e., if a new low in gold and silver concurrently with a higher low in the mining stocks were to occur. That would constitute a bullish divergence. That said, a few things argue in favor of the idea that at least a dead-cat bounce could be close at hand (famous last words).
On the daily and weekly chart of the HUI, there is now a price/RSI divergence. Moreover, the daily chart shows a close well outside the lower Bollinger band (unfortunately the bands are widening as well, which is usually a bad sign). In short, the decline happened so fast that momentum oscillators have failed to keep pace with it. The weekly HUI chart remains close to the most oversold RSI reading in all of history (the record was set in April).
Speaking about sad records, the HUI is now 164.55 points below its 200 day moving average, or more than 40% (!). If it had moved above its 200 dma by a similar percentage in the course of a rally, we’d call it an unsustainable bubble. So maybe it is an unsustainable anti-bubble. In any event, this also argues in favor of at least a dead cat bounce being near.
Gold and the HUI (green line below the main chart) diverge again – but not in a good way. Note also the new MACD sell signal for gold
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