On your marks - get set...
Major uptrends start when people are least expecting them, and sadly that includes a lot of analysts who, being human too, frequently get caught up in the prevailing psychology. Before a new uptrend starts its imminent onset is typically camouflaged by a baffling array of conflicting indications, so that those who ask the fatal "what if?" question, will forever be deflected from buying at the most opportune time. The Precious Metals sector has certainly been giving mixed signals these past few weeks, with a potential Head-and-Shoulders top appearing in the indices and negative volume behaviour in many stocks on the one hand, amid what otherwise looks like a normal reaction from a very overbought condition back to strong support on the other. On www.clivemaund.com we have thus far adopted a cautious stance, a too cautious stance it is now believed, due to the former manifestations.
The correction in the Precious Metals sector has had a devastating effect on the prices of many stocks, but that is not unusual in this relatively thinly traded, speculative market. The result is that many punch drunk investors, reeling from the clobbering they have recently received, and hanging on the ropes, are in no mood to rush back into the fray. Likewise, those who enviously watched the preceding big runup in the sector from the sidelines, and were starting to get interested themselves, are now congratulating themselves on their aloofness and restraint, saying "Told you so, that sector is for bums and panhandlers, not serious investors". The net result of this psychology is the comparatively very low trading volume in stocks in the sector, a circumstance which frequently precedes a major rally. This low interest is reflected in the all-important MSI, the "Maund Subscription Index" which is at a level that typically precedes a major uptrend.
A review of the charts of the PM stock indices and many PM stocks at the end of last weeks' trading revealed a subtle but very important shift, and as this is a market that likes to "keeps its cards very close to its chest", such a shift is expected to lead to a dramatic change in sentiment, resulting in a sharp upside breakout.
On the HUI chart shown here we can see how the index had been threatening to complete the Right Shoulder of a potential Head-and-Shoulders top area, but bounced off its 200-day moving average instead, then rallied up through its 50-day moving average, and appears to be holding its ground so that the 50-day m.a. is now turning up just above the 200-day - the classic precursor to a new intermediate uptrend. Thus, the potential Head-and-Shoulders top appears to be aborting, meaning a sizeable uptrend looks set to begin almost immediately. This observation has led to furious activity at www.clivemaund.com this weekend as a raft of PM stocks have been swiftly reviewed to capitalize on a likely breakout breakout and new intermediate uptrend. To be more sure we could wait for a 15 point up day in the HUI, but why miss out? - buying now you have more downside risk if this assessment proves incorrect, to be sure, but you can also set closer stops, as we have done in the stocks already recommended this weekend.
Most encouragingly, Head and Shoulders BOTTOM patterns above 200-day moving averages are right now completing in a wide range of Precious Metals stocks. A selection of these stocks, and others that look similarly promising are reviewed on www.clivemaund.com.
is an English technical analyst, holding a diploma from the Society
of Technical Analysts, Cambridge, England. He lives in Chile.
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Charts courtesy of StockCharts.com.