The 1,350 to $1,400 area is going to be important here. We banged against $1,400 a couple of times over the past two days and were not able to surpass it until this early this morning, when we had a quick break and then a jet to over $1,420. There was a lot of selling into that break, and so a retest of $1,400 will be increasingly important to see if this will be a failed bear flag or an actual recovery from the recent oversold condition.
We are as of this writing, trading at $1,407.
There is a possibility that we could snap back extremely hard on this recent down-plunge. There are stories all over the internet about large physical purchasing going on. This could be anecdotal (well, it IS anecdotal), or it could reflect the difference between the paper and physical markets. If the last couple of days action was a desperate move to combat an imminent physical delivery problem (as some have speculated), we could see a torching of the shorts like none have encountered since early 2009. Stay vigilant and nimble here.
Let me caveat what I am implying here by saying first that I fully expect the commodity price of gold to test the late 2011 lows of $1523, and perhaps even undercut them to really get the blood flowing. I am prepared for that, as I realize the run to $1900 — much like the run to $49 in silver, was too far and too fast, even in a fiat printing, race to the bottom, currency bubble. But with the $Gold:$HUI index approaching 2008 crisis highs, and the $Gold:$XAU index now reaching an unprecedented height, I am copacetic about holding what I have while becoming poised for a final shake out where I can harvest some of my favorite names once again.
Opportunities abound in high quality names, some of which offer dividends while one waits (I’ve already added AEM, as you know). There’s no need to stretch on speculation, now, and look for any miners doing business outside the safe zones of Canada and the U.S. and Mexico for some silver plays. RGLD at these prices is insane, and if you are worried about this pullback, please review that company’s past charts over the last ten years. All of these stocks — yes, even the quality ones like SLW and AUY — have trod this rocky path before. In my opinion, these, along with their underlying commodities, preferably held in part in the physical bullion, will help you weather the coming storm in collective currency crisis.
If however, you believe that Ben Bernanke can be the first Federal Reserve Chief to successfully inflate the economy out of a low growth, value inhibiting recession, then perhaps your trust in this new bull is warranted. In my business, and in the entire economy, I see inflated prices for everything already, so the valuations of the stock market come as no surprise. As we approach major all time highs in the SPX, I am increasingly skeptical that we can continue without a major correction, just as I was in late 2007-2008, when we saw similar overwrought behavior. I may miss the final euphoric highs, as I did last time, but I will not end up like the Capo Vito, either.
To be sure, I am not telling you to buy these miners at this bloody juncture. Even I am holding off for the turn, as I mentioned a few times over the last month. But I would also counsel you not to short a bull, no matter how wounded. Bulls are mighty, long lived beasts, and despite their weariness, can leave one singing soprano with little to no advance warning.
The Signs were out there, that’s for certain. They glow more balefully–frighteningly, perhaps – by the day. Soon you will find that their light will transform into warmth, and voila! — you are out of the cold. This week we saw the $HUI:$Gold ratio approach it’s late 2008 nadir, despite the lack of any similar shade of trouble in the SPY or any other major index for that matter. For many who have been suffering through this mind searing mini-bear in the miners, it was only one more pencil in the vile jellies. For me, it was the light at the end of the tunnel.
Adding reassurance were the hairshirt boys and the plungers. The hairshirt boys talked about “$21 dollar silver” and gold “heading back to $1200″ this week. More music to my ears. Then the dear plungers. Those who can always be counted on to ring the bell at the exact wrong time were actually starting to short stocks that had been pummelled for months now, quality be damned. Again, the scent of ambrosia, the ply of relief.
Can anyone predict the future? Only in Tom Hanks movies involving haunted vending machines, my friend. But there are time tested truths for all markets, and for the precious metal markets especially. Perhaps the hardest and truest is that both the bulls and the bears will suprise the hell out of you in this space. Such is the lot of a smaller capitalized, politically sensitive commodity group not exactly known for it’s GE-like management style. But an ancillary truth resides in the recovery from both a bull and a bear… namely, the harder the band is pulled either up or down, the greater the snap back to the up or downside.
Recently we’ve seen near-unprecedented disintermediation between the price of the miners and their underlying commodity in both gold and silver. Some of this is a result of input (cost) prices rising while commodity prices are remaining stagnant or falling off. Some is the result of rational hedging, and some the result of anticipatory momentum trading. It’s this last that has brought us to our most recent state, where one might say the blood in the streets approaches the door-level on our three-step brownstones.
But make no mistake, things are not going to be “different this time.” We’ve seen this all before, and the results have been similarly spectacular. We may have one more final “terrier shake” to throw the last remaining weak hands off the bus, but I have little doubt that the Fidelitys, the Blackrocks and the other large funds are right now gobbling up even more SLW and RGLD and AEM and AUY than they were last quarter. And AG…. oh my yes, AG.
I expect one more pullback today and perhaps into early next week, but I will initiate buys in AEM at any price under $40, if I am so lucky. Get yourself a dividend while you enjoy the rebound, why don’t you? You can always use the extra beer money, no?
As for our friends in the smaller silver market, I would think next week the safer bet, but if we see some pullback today, I wouldn’t gainsay your taking some risk. After all, for EXK to get back to a mere $7.00 (!!) is an almost 21% move from here. EXK will be $10 before next Christmas, if my predictions weigh out properly.
Moober can vouch for this. Woodshedder and Fly as well. Back in 2009, after one of the worst precious metal (and overall market) meltdowns in my lifetime, I started to plow back into the precious metal markets in the middle to third week of February. I was early.
Oh boyo, those were a painful two weeks plus, I’ll tell ya. But as I recall, we bottomed right around the end of the first week of March (the sixth or seventh?). It was glory days for the PM’s after that, right into 2010.
So I was feeling real good about getting back in during the first week of February. Real good. I guess I should have held off maybe two more weeks, eh? Ah well, let’s just say that we are running into the same exact kind of egregiously oversold market conditions we saw back then. Given the tenor of the rest of the market, and the gobbets of fake money-digits entering the global economy via the cake-batter hoses of the world’s central banks, this is an insane and untenable condition.
It will not continue.
I will not add here, but wait until the turn is in. I’ve saved a little something for the insanity.
I don’t generally do the intentionally provocative headline unless I’m trying to get your attention. And usually, I’m only trying to get your serious attention on the breaking political stuff. Very rarely do I pound the table on the market picks, unless I think we’ve entered a special “sweet zone” where we should collectively be taking advantage.
I believe this may be one of those times.
Let’s start with the commodity gold ($GOLD) weekly chart to show where it all began last week. I’m going to use the weeklies on all of these mostly to show the consolidations and the breakouts, and also to show how much room this thing still has to run before it gets RSI oversold. The gold weekly broke out of a consolidation flag that has been forming since September:
Now let’s look at silver, via the double silver ETF $AGQ, where we are back above that first resistance support line after undergoing an RSI-divergence (again) since September:
Last, let’s have a look at the gold bug index $HUI which shows us what’s going on with the major miners. Note that we’ve been in a consolidating channel for almost 17 months now, and we have taken off from the most recent bottoming with a strong weekly push:
I think that failed channel breakout from early September that has now consolidated into a flag pattern within the larger horizontal channel means that Baby $HUI is readying itself for a final breakout to the next level. Again, the abundant room left in the RSI and the other stochastics also give me some comfort here.
Now there’s a lot of room to make money in a cornucopia of names here, and– again– I’m showing you the weeklies to indicate that there’s time left for you here, especially in the traditionally strong names like AG, EXK, SLW, ANV, AUY, and even the larger players like GG and ABX. If you are not in any of them yet, then I would certainly make sure I had a position in SIL, GDX and GDXJ in order to cover the industry as completely as possible.
As for my favorites right now, I’ll give you a couple that I think you can buy “rain or shine” tomorrow because they’ve got so much “mo” behind them right now. The first is my long time favorite and Jacksonian, RGLD:
Again, there’s just so much power in that lift off the floor. You can wait, of course, to see if we break out of that triangle, but I think that volume and price action from last week are indicating that we may get out of it as early as this week.
My other “immediate” pick is Alexco Resource Co (AXU), which I have not mentioned in at least a year. Alexco, however is betraying a consolidation pattern almost as toothsome as the one AUY broke out of late last year. As you can see, this one’s bumping it’s head on the hypotenuse ceiling of that triangle. I think with anything close to the volume of last week, that ceiling is history.
Enjoy, and partake, if you like. Despite the temporary winds against us right now, I don’t think we’ve seen an opportunity like this in almost 18 months. Make hay while that sun still shines.
Options expiry week always makes for fun times in the already-volatile precious metal markets, and this week was no exception. In fact, I’m thinking of just posting pictures of Care Bears and soothing contra-alto laden Carpenter’s videos during these weeks in the future. I think that policy would be much better for our collective gastro-intestinal health.
I guess we should have been even more wary this week, as the POG and it’s idiot sister, the POS, were both due for cycle lows on top of their collective miners’ options’ expiry. That combination made for some sickening drops this week, and now, I contend, for some very attractive purchase prices.
When was the last time you were able to buy SLW under $30.00? Howabout ANV under $30?? Oh, sorry, that was yesterday. You snooze, you lose. SSRI looks like a nice pinch right now, if you’re looking for a cherry. EXK and AG in that order, remain the best of the silver surfers, however.
For those wading back in, the ETFs would be the order of the day… I like them in this order — GDXJ, SIL, GDX, and for the brave of heart — NUGT (real small now!).
I made mention earlier in the week that I want to see the price of gold ($GOLD) hold that 34-week EMA. It will be interesting to see if it does get back there today…as that’s $50 north of current prices at $1642.80. There is precedence for closing very briefly below there on a weekly basis — way back in April of 2009, when we were just crawling out of the muck. Could this be a similar situation? Let’s see how we close today.