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Gold Stocks Line Up for a Big Move
Online Stock Market Trading By Mike Swanson
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Stock Investing Course (AXcess News) Reno - The action in gold stocks is getting interesting again. Over the past few weeks, several conflicting signals have made me more and more cautious on the gold stocks. But now there is a distinct possibility that we could actually see gold stocks make a big move to the upside - and soon.
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Stock Market Game First the negatives. Gold stocks have been lagging the metal since they peaked in September. As you can see, the XAU/gold ratio (bottom of the above chart) has been in a downtrend during this time. This prompted me to lighten up on some of my gold stock positions and get more cautious. However, if we can get a strong move up in the gold stocks then the XAU/gold ratio will break out of its downtrend channel.
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Stock Investing Game It's always a good policy in investing to not follow the crowd. That being said, a lot of people have jumped on the gold bandwagon, as evident from popular commentators recommending gold, such as Jim Cramer, and the huge non-commercial long position of 206,809 contracts compared to the commercial short position of 235,105 contracts (that is an open interest of 69.3% on the short side for the commercials).
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Journal Prime Rate Street Wall At market turning points during the past few years, non-commercials have been wrong and commercials have been right. However, commercials have been net short for months now.
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Stock Market News Now for the positives. Last week, commercials actually covered 16,060 contracts while non-commercials sold 17,615 long positions, despite the fact that gold moved up. This is a positive for the short-term.
Stock Investing Basics Over the past two weeks, we have seen the XAU fall into its support zone of 97-102 and bounce back. Support has held, which is a positive. Resistance is now the upper downtrend line on the XAU. Notice that the support and resistance trendlines are coming together to form a triangle. Volatility is also beginning to shrink as the bollinger bands are tightening. This is almost always the prelude to a large move, one way or the other.
Stock Investing Software If you just look at the XAU chart and forget about gold commercials and everything else, you can see the possibility of a big break to the upside coming. If the XAU just stays above 103 for the next few days then the volatility will shrink even more while support holds - that will set the stage for a breakout and move up to the 52-week highs.
Stock Market Trading If this happens, then I plan on increasing my gold stock exposure with purchases in HMY, DEZ, GG, GLG, NXG, AUY, PDG, NEM, GOLD, and TRE. All of these have been outperforming the XAU. Stops would be placed at their October lows.
Stock Investing For Dummy If we get the breakout, then I think we will see the XAU go to the 125-130 area and gold up to 500 by the end of the year on a commercial short squeeze, at which point they'll probably make major tops for the next quarter.
Stock Market Crash If, however, the XAU closes below its support trendline (now above 102), then I will sell my remaining gold stocks in the expectation that the correction which began in September is going to continue with a washout of the non-commercial long position in the futures market.
Stock Investing Tip Really, it's up to the commercial shorts right now. They have been trying to keep gold down for the past six weeks and have failed. They are either going to get caught up in a massive short squeeze or they will finally succeed in tipping gold into a deeper correction. But the fact that they covered some contracts last week may be a sign that they are getting ready to throw in the towel.
Stock Market Chart Sometimes the moves in gold over a couple of weeks become confusing. You get conflicting signals and you can't know everything. You can find a reason, real or imaginary, for every move in a market. At times like these, I like to return to the basics and the most simple analysis - and that is the chart pattern in the XAU. It is telling us that something big is going to happen. We just have to see what resistance line in the triangle the $XAU will beat through, and then we'll know what the trend is going to be through the rest of the year. All we have to do is be prepared to take action when it tips its hand.
Online Stock Investing Source: Wall Street Window
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