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A Correction in Big-Caps Should Help Selective Juniors to ShineContributed by Olaf Sztaba In our latest Gold Comment, we viewed the late January weakness as a "pullback that refreshes" and a chance to increase holdings. We also pointed out opportunities in selective junior Gold stocks that usually lead in the latter stages of the advance. Our bullish stance was on target. The rally from mid-February lows sent the main Gold stock indices, the XAU and the HUI, into all-time-high territory. The advance was led by large names such as Barrick Gold (ABX), Goldcorp (G) and Agnico-Eagle (AEM). Although the majority of big-cap stocks still show strong upside potentials, many of them may need a rest. Such a pause would help them to eliminate any discrepancy between the prices and their 200-day moving averages. For this reason, we should be prepared for a possibility of a sharp correction in some stocks. There was also a positive movement among junior stocks; however, it was a very selective affair. Therefore, any weakness in these stocks is less likely. Quite the opposite! Some stocks have had major breakouts from lengthy consolidation patterns and they may strengthen in the next few weeks. Just to single out a few, High River Gold (HRG) and Eastmain Resources (ER) had breakouts from huge consolidation patterns; Great Basin Gold (GBG) moved above main resistance; Jinshan Gold Mines (JIN) and Pacific Rim Mining (RIM) appear to be ready for major breakouts. Expect the leadership of the sector to rotate toward junior stocks. This usually coincides with a slowdown in big-league names. This change should be especially apparent in the second half of the year when the advance is most likely to accelerate. XAU INDEX (Daily chart with 50- and 200-day moving averages)  It's been an explosive recovery from the mid-February low for the XAU index. Upside progress was impressive and quickly got the index past the resistance zone at 190-195. The rally, however, was halted just above the 200 mark and, after a brief consolidation, was followed by a decline toward the 50-day moving average. In order to avoid a deeper correction toward its 200-day moving average (currently at 165), the index must hold above the 50-day moving average and the support at 190-195. A refreshing pause for the XAU index would be welcome. This includes the possibility of a decline toward the 200-day moving average. Then watch for another up-leg towards our next target of 240. Written on About NA-Marketletter 321gold Ltd |
Mar 14, 2008