Gold Stocks On Fire

The gold sector is on fire.  GDXJ is a leader in the ETF universe up over 40% YTD.  According to the Stage Analysis below GLD, GDX, and SIL all transitioned into Stage 1 this week.  On individual gold stocks, over 70% of the stocks listed below are now in Stage 1 or Stage 2.  The volume in GDXJ and GDX were also huge last week, GDXJ traded over 25 million shares for the week which blew away previous record volume.  GDX had it’s second most up volume ever last week.  SIL had it’s most up volume since 2011.

gdxj

gdx

GLD and SLV continued to move higher last week, but haven’t seen near the increase in volume that the gold miner ETFs have.  I’d like to see the volume in those ETFs increase to confirm the new uptrend.  Also I would expect to see some type of pullback or consolidation occur in the gold sector sometime soon, given the huge gains.

Stage Analysis

Ticker Stage Weeks
GLD 1 1
GDX 1 1
SIL 1 1
GDXJ 1 2
PALL 3 3
PPLT 4 3
SLV 4 22
Totals
Stage 1 57.2%
Stage 2 0.0%
Stage 3 14.3%
Stage 4 28.6%

Stage Transitions

GLD transitioned from Stage 4 to Stage 1

GDX transitioned from Stage 4 to Stage 1

SIL transitioned from Stage 4 to Stage 1

Stage Analysis

Ticker Stage Weeks
AG 1 1
AUY 1 1
EGO 1 1
GOLD 1 1
HL 1 1
KGC 1 1
NGD 1 1
PZG 1 1
RVM 1 1
SAND 1 1
SLW 1 1
VGZ 1 1
GG 1 2
LODE 1 2
ANV 1 3
AU 1 3
RIC 1 3
AAU 1 4
GSS 1 4
PVG 1 4
ABX 1 5
AEM 1 5
AUQ 1 5
MVG 1 5
THM 1 5
AXU 2 1
EXK 2 1
MDW 2 1
MGN 2 1
MUX 2 1
NG 2 1
PAAS 2 1
PPP 2 1
RBY 2 1
RGLD 2 1
SSRI 2 2
LSG 2 2
ASM 2 3
FNV 2 3
TAHO 2 3
NSU 2 4
BRD 2 5
SWC 2 7
AGI 4 14
SVM 4 16
SA 4 20
IAG 4 21
AKG 4 21
TRX 4 21
CDE 4 23
DRD 4 42
PAL 4 52
TGD 4 52
NAK 4 53
BAA 4 66
NEM 4 66
BVN 4 70
GFI 4 77
GORO 4 83
HMY 4 102
XRA 4 126
Totals
Stage 1 41.0%
Stage 2 29.6%
Stage 3 0.0%
Stage 4 29.6%

Stage Transitions

AG transitioned from Stage 4 to Stage 1

AUY transitioned from Stage 4 to Stage 1

EGO transitioned from Stage 4 to Stage 1

GOLD transitioned from Stage 4 to Stage 1

HL transitioned from Stage 4 to Stage 1

KGC transitioned from Stage 4 to Stage 1

NGD transitioned from Stage 4 to Stage 1

PZG transitioned from Stage 4 to Stage 1

RVM transitioned from Stage 4 to Stage 1

SAND transitioned from Stage 4 to Stage 1

SLW transitioned from Stage 4 to Stage 1

VGZ transitioned from Stage 4 to Stage 1

AXU transitioned from Stage 1 to Stage 2

EXK transitioned from Stage 1 to Stage 2

MDW transitioned from Stage 1 to Stage 2

MGN transitioned from Stage 1 to Stage 2

MUX transitioned from Stage 1 to Stage 2

NG transitioned from Stage 1 to Stage 2

PAAS transitioned from Stage 1 to Stage 2

PPP transitioned from Stage 1 to Stage 2

RBY transitioned from Stage 1 to Stage 2

RGLD transitioned from Stage 1 to Stage 2

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.

The Puke And The Whimper

Action in gold and the gold shares continues to be brutal.  But one thing that has really piqued my interest from a trading perspective was the high volume flushout in GDX back on January 25th.  That was the highest volume GDX has done to date and really looked like it was the type of volume that reeked of total fear and emotion taking over and bad decisions being made.  If you’ve followed charts for a while you’ll often see huge high volume days right at the bottom, when everyone wants to head for the exits at the same time.  It doesn’t necessarily mean the market is ready to rocket higher at that point, but often times it marks bottoms or very close to the bottom since sellers have finally capitulated.  It’s really kind of a cool thing to look at because the raw emotion is staring at you right in the face with the big red candle on high fear drenched volume.

I got further intrigued when I noticed a similar pattern in recent action in GDX to what happened back in July 2012, when GDX put in a bottom and started rocketing higher.  It’s possible I could come up with a better name for this pattern but for right now I’m going to call it The Puke and The Whimper pattern.  The Puke is simply the high volume fear based selling, when shares are literally being puked up by sellers who can’t take the sickness to their stomach anymore.  The Whimper is the interesting part as it comes after the sellers are puked out, but they still are moaning and want to make it appear like they are still in pain.  But since they have done most of their selling all they can do is utter a mere whimper.

Here’s the chart with The Puke and The Whimper pattern back in July 2012 and the possible second addition of the pattern after the action on February 11th.  Notice how each Whimper was a low volume gap down, if you look closely at the chart I don’t think you’ll find lower volume on a gap down than either of those 2 days.  In the first edition of the pattern the Whimper came about 6 trading days after the Puke, with the Whimper requiring one additional day after the gap down before it was off to the races.  Currently the Whimper is about 10 trading days after the Puke, and it’s possible this Whimper would need a little more time to play out based on the strength of the recent Puke.

What I find intriguing about all of this is the nature of trading and making winning trades.  Will the 35+ million shares that were sold on January 25th end up being part of a winning trade?  They were sold into a support area, and at the end of a multi-month downleg, within the confines of a long term secular bull market.  That sounds more like a fear induced stampede, with the short term as the focus, than well thought out selling with a long term time frame in mind.  And at the end of the day is being part of the herd how you win at trading?

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.

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.

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.

The Interview Of The Year

Happy New Year to all my readers and I hope 2013 brings you peace, happiness, and profits.  In 2012 the year can be boiled down into one basic trade, if you bought the dip in the summer in the right markets, you probably did fairly well.  Most notably the biggest moves were in some of the markets where there was the most fear:  the Euro, natural gas, and some European markets such as Greece and Spain.  Other than that it wasn’t a very easy year for longer term trend followers with a lot of markets experiencing very choppy trading.  We’ve had 2 years in a row now of a lot of choppiness and mean reverting moves in the markets, it should be interesting to see how things evolve in 2013.

As we reflect on the year and think about the long term big picture I’d like to share my favorite interview from 2012.  There’s a lot of great points made in this interview from Frank Giustra on the long term outlook for inflation, the gold bull market, junior resource stocks, fear and greed, the Federal Reserve, and China among other things. Especially for gold bulls who’ve had a rough time of late I think you’ll want to check this out.

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.