Leading indicator for the gold sector
Out of all the emails I receive from my subscribers and the public, the most common question lately is: why are gold stocks under-performing bullion?
As I have confessed before, I really am not smart enough to answer that. And if you ask ten gold experts, you will likely get ten different answers. My area of interests is gold stocks, it is my job to provide timely signals to my subscribers to either enter or exit the gold equity market. So, my focus is on when, and not why.
$HUI - my signals are very simple and straight forward: either it is a buy, or it is a sell. We had a buy signal in early September, and followed by a sell signal in early October. Currently, investors are in cash, and traders are short; there is no other viable positions, period.
Many gold equity investors are bullish because both gold and silver are at recent highs, and appear ready to break out. There is no argument about that. But what does that have to do with gold stocks? And if indeed both gold and silver break to another new high, will gold stocks follow?
Lets look at the $HUI chart again. And indeed, the uptrend is intact, hold the gold stocks, and perhaps buy more. That seems to be the general consensus......
Our leading indicator, which is part of our IP model, helped us to navigate the IPs (impulsive phase) in 2002 and 2003 for some very nice returns. And because it charts the performance between gold and gold stocks, it often leads the market on the way down, and on the way up. Currently, it has done just that. This leading indicator broke support in the second week of October, alerting me to a trend change. Then again this week, it tested support and then resistance, establishing a down channel in the process. This confirms our current sell signal, keeping our subscribers out of harm's way.
And a follow up on our " four dollar indicator", it attracted a lot of attention the last time I posted this chart. GFI has been stuck in a four dollar range in the past four years. You simply go long below ten and reverse to short above fourteen, making a round trip of eight dollars, approximately 80% return on your money. This will not go on forever, therefore, for risk management, those who are short from $14+ should move their stops to break even and go fishing for a while.
End of report