Five Things To Notice While Gold Keeps Drifting

1.  If you paid attention to the GDXJ to GDX ratio back in 2011, it gave you a 4-month heads up that something wasn’t right in the gold sector.  The ratio made a series of lower lows while major gold stocks continued higher, and the price of gold surged higher into a parabolic top.  This divergence forecasted the bear market in gold and gold stocks that has followed to this day.

2.  But now to the good stuff, first the MACD ratio here is actually trying to hold up and not roll over.  It is also challenging the all important zero level, which tends to separate uptrends from downtrends.

3.  This is the kind of volume increase you want to see coming off of a bottom.  And the pullback since October has been on mostly lower volume.

4.  Maybe the most important thing on this chart, this price divergence could be forecasting a new upleg in the gold sector if it holds up, just like the last major divergence forecasted a new major downleg in 2011.

5.  I’d like to see this ratio break above the 30-week moving average and see another increase in volume to confirm a real breakout higher.

This is definitely a chart to keep an eye on if you’re following the gold sector.

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The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice.  Please see the disclaimer.

Coal Stocks Grinding Higher

Coal stocks continue to steadily emerge from a brutal bear market over the past 2 years.  Last week the coal ETF KOL broke above its 30-week moving average for the first time since early 2012.  As you can see on the chart below KOL has been declining below this moving average in a Stage 4 decline since August 2011.  If KOL can continue to move higher above the 30-week moving average it will transition into a Stage 2 uptrend.

Looking at a daily chart of KOL a couple of things stand out.  First, the RSI has consistently stayed above 40 since September, even during pullbacks.  This is typically the sign of an emerging uptrend since KOL is failing to get too oversold when it pulls back.  Next the action in October was encouraging as volume started to increase as KOL started to approach resistance around the 25-26 area.  Things changed quickly though after the re-election of President Obama, which was perceived to be a negative for the coal market.  A wave of selling hit the coal sector right after the election and caused a big gap down in KOL.  It continued to sell down to about 23, but instead of continuing lower found support there that has held since June 2012.  Then KOL started to move higher once again in December.   KOL gapped higher to start 2013 and each of the 3 trading days in 2013 have seen above average volume, which is a good sign for a breakout.

Next let’s look at some individual coal stocks.  Most coal stocks are lacking one key ingredient for a breakout, which is an increase in volume.  Just like the KOL ETF, individual coal stocks saw increasing volume in October, but have seen limited buying pressure since the gap down after the presidential election.  These stocks need to see buying pressure to overcome the gap down resistance and to transition into sustained uptrends.

BTU and ACI are two examples of coal stocks below their election gap downs.  Both have established a pattern of higher lows and have bullish RSI readings, but need volume to move past their gap down levels.

ANR has overcome its gap down from the election, and has seen a little more buying pressure than BTU and ACI.

As 2012 came to a close and during the start of 2013 the market has seen some sectors that were crushed over the past 2 years move substantially higher.  This includes solar stocks, steel stocks, and some major commodity producers.  The coal sector looks poised to continue rallying but needs more volume to come into the sector, otherwise the chances of the rally continuing are diminished.  In particular watch how the sector trades as a whole as time moves forward.  The best scenario for a sustained uptrend would be to see increased volume across the board in individual coal stocks as well as the KOL ETF.

Disclosure: Long ANR

Connect with me on Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice.  Please see the disclaimer.

Gold Miners Looking For A Major Turnaround

Gold stocks are about as contrarian a sector that exists in the market right now.  Even though gold hasn’t had a down year in 12 years, gold stocks have now recorded 2 straight down years, the first time that has happened during this gold bull market.  Shown below is the performance of the HUI Gold Miners Index since 2003:

Relative to gold, gold stocks have had about the same amount of underperformance that they had from 2006-2008.  This ended up leading to two years of outperformance by gold stocks over gold in 2009 and 2010.

Relative to the S&P 500 gold stocks did horribly last year, recording their worst performance since 2003.  And this is the first time since 2003 gold stocks have underperformed the S&P 500 2 years in a row.  Notice that before the last 2 years, gold stocks had outperformed the S&P 500 by double digits almost every year, except for a down year against the S&P 500 in 2004.  Even with 2 down years in a row though gold stocks are still outperforming the S&P 500 over the long term.

Compared against 52 exchange traded funds tracking various sectors, countries, and commodities, gold stocks were close to the bottom of the barrel both during 2011 and 2012.  First shown is the ETFs sorted according to their performance in 2012.  In 2012 a lot of markets that performed poorly in 2011 had big turnarounds, most notably many European markets.  Fading the negativity towards these markets in the middle of the year turned out to be the major trading opportunity of 2012.

Next is the list of ETFs sorted according to their performance in 2011.  In 2011 the worst performing markets were basically foreign stocks and commodities.  In 2012 foreign stocks had a big turnaround, but commodities didn’t and lagged the rest of the market.

So the key thing to note coming into 2013 is commodities are one of the only sectors with 2 years of negative returns coming into the year.  There’s no doubt value investors and contrarians will be taking notice.  There’s research that shows that assets that have negative returns for 2 and 3 years in a row tend to outperform on the upside when they eventually mean revert.

Within the commodities sector gold miners are overdue for mean reversion not only against gold but against the stock market in general. Three years of negative returns in a row is pretty rare, so there’s a good chance the mean reversion for gold stocks will start this year.  Especially considering gold likely put in a major bottom last summer, and could be coming off of a successful retest of that bottom to start the year.

Connect with me on Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice.  Please see the disclaimer.