Is the HUI about to correct?

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Is the HUI about to correct?

Print This Post | Topic: Gold — September 27th, 2007

The HUI Chart 27sep07
As investors who are totally invested in the precious metals market with nothing at all in the mainstream sector we tend to regard ourselves as having a contrary viewpoint. So according to the dictionary we are opposite in nature, altogether different and are inclined to oppose stubbornly.

And I thought that we were such agreeable people!

So despite everything that we have read recently about how high gold prices are going we are also aware that nothing goes up in a straight line, there are pullbacks along the way. We are of the opinion that this is one of those times and have taken some money off the table. However we are not that brave that we would step out of this bull market in gold completely. No that is possibly the biggest mistake that we can make at the moment but we did decide to move some cash to the sidelines with the view to re-entering the market at cheaper levels. Should this not eventuate then we will have to bite the bullet and return at a higher cost to ourselves.

This leads us to the issue of the HUI (the index of basically un-hedged gold mining stocks) and is it correcting or not? Will we get a sufficient down turn to make it worth the risk? Well the chart of the HUI does appear to indicate that the magnificent 100-point rally has run out of steam. And as we have said previously we are small enough and ought to be quick enough to trade this situation, however, time will tell! We can see that the HUI has lost about 18 points since hitting 400. We also note that the RSI, MACD and the Stockastics have turned and are heading south.

Gold and silver have started well today but they do have a habit of hitting New York on a high only to head south and finish lower by the close of trading. Also remember that the HUI does not always follow gold up although it is true for most of the time. Having taken some money off the table we can only observe how this situation unfolds and prepare to pounce back in when the moment presents itself.

Have a stubborn one.

4 Comments »

Obviously you called it wrong and will have to bite the bullet.

Comment by John — October 1, 2007 @ 2:01 pm
I really like your stuff. Well thought out. I thank you for it.

Something to consider. I look at the charts exactly the same way you have. Overbought. Expect at least a small selling wave. And, yes I agree, it’s simply prudent to take some off the table after a big run. No argument there at all. You’re a smart trader. I like that. Your timing’s been great.

But here’s my twist on the somewhat bigger picture…a kind of rule of thumb going forward.

Whereas gold failed and fell back in the face of good chart setup after good chart setup earlier this year, I now think that gold will hold firmer than expected and rally in the face of bad chart setups like the current one more often than not for quite a while. Why?

Before the crisis, people were worried about what would happen if we got a credit / liquidity seize-up in the system and the boyz started selling anything that wasn’t nailed down that still had a bid. That capped all upside enthusiasm. And we wanted to see how the Fed would respond when it happened. Fear was dominant.

Now that we’ve broken out of a long consolidation with some authority on the back of a total Fed capitulation, it seems to me that the game is turned upside down.

Any selling we see will be simple profit taking (…like the kind of nomal post breakout pullback we’re seeing now.) Those pullbacks will be quickly met with buying by those who missed the train when it was leaving the station in August.

The kind of fear you’d need to see to kick off any kind of serious downturn here is largely absent. Maybe it shouldn’t be given the ongoing credit “revulsion”, precarious state of the carry trade, and the spiral into recession, but it is. Most see the Fed as having flashed one of the biggest green light / all clear messages in history. Who wants to sell into that? And once the momo guys start to pile in, it could easily get like 2006 again, especially if that ratty old dollar heads south from here with any conviction when so many are expecting a bounce…”just like last time” it kissed this level.

So, my guess is that the vigor and persistence of the rally will surprise in the face of technicals that keep telling the prudent to take some off right now. Normally, I would have, but I’m not this time.

Just a thought for what it’s worth. Time will tell if I’m crazy to ignore an MACD that’s rolling over like that. It should make my eyes bug out.

Anyway, thanks again for your fine service. It’s first rate…and the price is right!

Comment by TW — October 1, 2007 @ 6:52 pm
Dang, I sold a little too early and missed the extra 2%. Oh well, the rally should over soon. I heard the shorts are positioning themselves now.

Comment by pho — October 1, 2007 @ 9:05 pm
Your comment about selling at $20 and buying back at
$15 do not make sense. What about taxes on your gains
Long term or short term.

4$1

415

Comment by Fred Mathias — October 19, 2007 @ 2:44 am

Is the HUI about to correct?

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