Monday, March 26, 2007

The Divergence Continues


Today, certain stocks made significant gains. GSS broke above the upper diaganol line suggesting that this formation is a leading formation. I still expect it to pull back and consolidate, but it appears that 4.00 is being turned into support. When the market conditions are right to reposition GSS will be the first place I go. RNO, also listed here, made a massive breakout over 4.00 indicating a new impulse leg may be at hand. I reviewed several Canadian listed gold and silver stocks tonight and noted some breakouts and new impulse legs. I will update those charts by the weekend in the section below. Some technicians have pointed out that conditions are not appropriate for the start of a new bull market impulse leg in the PM sector. Ski subscribers in particular await proper alignment of index signals and in fact anticipate a sell signal setup very soon. I am currently in a waiting pattern and will continue to mark up charts and consider the implications of a Ski sell signal and the subsequent resolution of the large symmetrical triangle in the HUI index. Clearly, the .20 xau/gold ratio has generated some interest. I have also seen some insider action in GSS and CDE to name a few. Oh, by the way, one other chart that is getting my interest lately is CGR. We'll post a update on the chart soon.

Here's a chart to ponder for a bit. Consider the pennant and primary trendline as seen on a linear scale version of the HUI index. In my opinion the internals are not setup for a sustained move to new highs. The question in my mind is presented on the chart. Which way will the pennant break. Of course nobody can say, but we can contemplate what happens thereafter.


Sunday, March 25, 2007

The xau/gold ratio


Much has been written lately about this ratio and its ability to call bottoms in the sector. While I agree with the methods I also am mindful that paradigms tend to shift just about the time when they become widely adopted. Therefore, I believe it is prudent to examine the long term montly charts of this ratio and see where we are in terms of historical trends in this ratio. As you can see by the chart shown, shares as represented by the xau have drastically underperformed the metals. This should be of no surprise as the index is comprised of companies that were essentially short their own product as prices were beginning a massive bull market. Much of this has been unwound and I wont get into those details here. The chart clearly shows that the ratio has spent the entire 6 year bull market under the 50% retracement level. The paradigm for swing trading this bull has been to go long around .2 and sell around .28. That has worked well, except now I think the method may be a bit too widely accepted. So what would it take to catch the crowd off sides here. I cannot really provide evidence other than a gut feeling, but it is my contention that the market at some point soon will do the unthinkable and break support of the lower boundary. A test of the long term lower bollinger band would setup a very strong buy in the sector. Maybe it's wishful thinking, but thats what I'm watching for.

Tuesday, March 20, 2007

More Chart Updates

The charts listed below have been updated as of tonight. I still see a mix in the sector. I like the way Steve Swink put it right here. Steve has a level approach to this sector. Many expect a flush now, and some are already loaded with long positions. The reality is that there are both good and bad charts showing up in my analysis. What's really amazing is that some charts have just enterred what appears to be long term consolidation cycles while others have just completed long term consolidation cycles. What gives? Somehow I think the resolution to this divergence holds the key to the future of the sector. I do see room for a flush to occur without invalidating the positive cycles I see in the good charts. The character of this bull to date has been to punish the longs near the end of major corrections. Maybe thats what's in store now. I do believe the best place to position will be the technical frontrunners we are identifying now. However, there may be a place for some strategically placed calls in severly oversold shares that have a history of volatile reactions.

GSS, AEM, EGO, HL
HMY, PAAS, KGC, SSRI
MDG, FCX, AUY, IAG, NEM

S.M. Himes

Friday, March 16, 2007

GSS Under the Hood


As we have seen several juniors have been outperforming. This post considers if its time to commit some money in that portion of the sector. First, It is unclear to this trader if the recent hammer on the HUI is a significant bottom or just another corrective bottom. On first observation the fear generated that day in the sector did not seem strong enough to spark a lasting rally. Although the xau/gold ratio did dip below .20, we are not quite satisfied that all conditions are set for a sustained rally. Additionally, it is not in character for the metal to lead the shares into a major impulsive move. Of course this time could be different, but we will have to use history as our guide until proven otherwise. Second, as Steven Jon Kaplan has pointed out, insider action is not exactly typical of a major bottom. Third, I submit a short term chart of GSS. As I stated a few days ago, these types of momentum moves can be subject to a quick reversal. So lets take a look under the hood and see if that is about to happen with GSS. GSS has been in a long basing pattern. These patterns typically set the stage for major rallys. The short term chart shown is building a diaganol from which direction will be determined. I have shown wave counts for a leading and ending diaganol. If the pattern turns out to be a ending diaganol then I expect a correction back to the 3 dollar base that GSS has so well established. It's not hard to see how a reaction like this could occur when you look at the weekly chart. On the other hand if price breaks north of this formation, then it will be a confirmed leading diaganol. The first target would be 6. Looking at some internals we see that there is a negative divergence on the macd and rsi. These are warning signs. As GSS is one of the sector leaders currently, we can use the outcome to help formulate an investment opinion going forward. P.S. Disclosure: I bought a little gss Friday for a short term trade.

S.M. Himes


Thursday, March 15, 2007

Watch Those Trendlines


The last major HUI correction occured in 2004 when the monthly macd topped out. If we compare the current cycle to that of 2004 we can see that the correction either is very early in its cycle or there is a major bullish impulse coiling. The Andrews pitchfork diagram shown depicts the likely bullish and bearish price progressions and the "lines in the sand" for such trends. I am the first to admit charts are not crystal balls and anything is possible. So lets consider the possibilities.

1) The current trendline (now at 310) holds, and price enters a parabolic blowoff stage. The monthly macd bottoms and hooks up hard at yet another higher low. In retrospect a wave five impulse will be evident from the then completed chart. 2) At some point of exhaustion (perhaps on a monthly macd histogram kiss) price fails to attain a higher high and the primary trendline fails allowing prices to fall into the mid band of the pitchfork. Since this is the mean of the trend (provided a parabolic blowoff didn't precede the break) it seems likely that prices will gyrate around the dashed line as the bull phase gets back in sync. 3) A bearish phase occurs after the support break outlined above in which price actually enters a bear market and trends in the lower half of the pitchfork. I can only see this if the USD begins a 1 year plus bull market. The bearish phase would represent a capitulation of sorts to negate the SKI-style death run of May 2006. This could be a drawn out process that would be a painful death by a thousand cuts, at least until the final capitulation. In technical terms it would involve a bearish crossing of the monthly macd. This sort of action would also suggest that our 50 month sma bull market envelope analyses would come into question.

Perhaps Occam's Razor would provide the best solution here. To me the simplest solution is that price tends to follow the mean of the trend, and the trend is your friend. That may not be much help for those holding longs from hui 300+ if the lower channel is visited in the next several months. Personally, I rarely hold trades long enough for this picture to disturb me. So we'll just go with the flow, buy when good values appear, and sell when the froth comes back.

S.M. Himes

Wednesday, March 14, 2007

Chart Updates

A total of (7) xau/hui charts have been updated with my annotations. These are for the most part monthly charts. The point of this exercise is to gather some facts about the envelope of this bull market. In my opinion long term charts tell you the most about what is reliable about the trend. The links are near the end of the page under the xau/hui component heading. The following charts are now updated. By the way, I keep coming back to a common theme regarding the 50 month moving average. Most all of these charts show similar trends guided by the 50 month sma. I guess thats not a surprise.

ABX
AU
GG
CDE
RGLD
GFI
GOLD

Todays chart of the HUI shows that price is very close to a major turn. Its basically boxed in. The batwings pattern shown (some call it a head and shoulders) might just be a great "painthecharts" rendering. Of course we don't have the luxury of knowing the outcome yet, but we do have a nice hammer candle on the daily to sleep with tonight. I have to say I'm not sure the current price to MA gap is narrow enough to support a sustained impulse leg in the HUI. The charts of the major components of this index seem to support that notion. I guess I'm not going to get too excited yet, but its nice to have a positive day.

S.M. Himes

Tuesday, March 13, 2007

Other shoe is dropping

Yesterdays caution is warranted. As expected though the strong list continues to be stronger than the rest that are tanking. I just want to note that the breakout retracement on the strong list from yesterday can still feel quite painful as these are weekly charts and could fall 25% or more. They still are the strongest and will remain in uptrends. Here is one we have followed alot in recent years. It's in the weak list as it has not exceeded its high of 2004. I like to contrast the weak and the strong to get a feel for the boundaries of the landscape. So expect a little of everything here. Maybe we'll take a look at drooy next , not.


S.M. Himes

Monday, March 12, 2007

Some Juniors are Outperforming

The action on some juniors is really driving me nuts. While the sector as a whole drifts downward to long term support some stocks have or are breaking out and embarking on impulse runs. Take a look at a few of them below. RNO (shown) has broken out of a head and shoulders bottom. In previous waves these formations have preceded major moves in stocks like cde and gss to name a few. I have not taken the time to annotate these charts. I just wanted to collect and present a few of the ones that are on my radar now due to the impulsive nature of the moves. Assuming the sector has more bottoming to do these moves are likely the end of the beginning type moves, with retests of the breakouts to occur with the rest of the sector bottoming. MRB is a example of a stock that is right at the upper trendline for a sinclair style 1/3 sell. I can't help but think these stocks will be on our leader board when the next wave is in full force. I have to issue a word of caution here as these are currently momentum trades. They can end quickly and start retracements back to the breakout points. I suspect thats what will happen provided the sector makes a move back under the current primary weekly bull market trendline shown in a previous post. If on the other hand support holds here I expect these stocks to go ballistic. The point of the post today is to show some strong stocks that are leading in spite of some of the bearish developments in the sector.


follow these links for the others on my mind.

GBN CGR GSS AZK OZN NAK





S.M. Himes

Sunday, March 11, 2007

Gold Investors Worried about General Market?

For those gold and silver traders that are worried about the general market taking down the gold and silver stocks I suggest you spend some time here. Matt Fraileys excellent set of charts depicts the overall market landscape quite well. You will find various sectors charted including gold and oil as well as the dow and nasdaq. The general theme I get is that the recent selling action is not the beginning of a bear market, but simply a correction into the four year cycle low. There are some good bottoming indicators in these charts which can be watched for our positioning entries. I particularly like the price relative data for the hui, xau, and component charts. Time spent with these charts will be well worth it.

S.M. Himes

Saturday, March 10, 2007

A quick look at the HUI monthly

Sometimes its best to step back and take a look at big pictures before considering the shorter time frames. The big picture cycles are in charge. Clearly the HUI index has been in a strong bull market for several years as this chart shows. There are a few issues worthing of considering about this chart.

click here for chart closeup



1) Price is and has remained close to the primary bull market log uptrend line for some time now. Price volatilities seem to be decreasing.

2) The 50 month simple moving average seems to be a key technical for the rising tide of the HUI bull market. Notice the rate of change is pretty much parallel to a regression channel for the HUI price itself in the last few years.

3) A comparison to the 2004 support break reveals that the 2004 "price to ma gap" was much larger on a percentage basis than exists with the current monthly candles opening price. This must be a feature of a logarithmic progression in a bull market.

estimated 2004 = (241 - 112) / 241 X 100% = 53.5%
estimated 2006 = (362 - 240) / 362 X 100% = 33.7%

4) The 402 high marked a failure to progress all the way to a trend line top of the parallel to the current log bull market support line.

5) There are negative divergences showing up in the RSI and the ADX. There is also a peculiar footprint on the monthly stochastics in which the time at overbought is significantly shorter than the period leading up to the 2004 support break.

6) A monthly macd warning was given at the end of 2006. In 2004 this signal preceded the major support break.

These are just observations. My first take is that they are a bit bearish. However, there are some bullish things happening too. The big question everbody is asking is whether that primary trendline will break. I've considered that question so much that I finally decided I don't like the question anymore. No chart is capable of predicting the future with any certainty. So why not just change the question.

The way I see it this bull market has some warning signs in the internals, but it also has a clearly defined rising tide. The 2004 picture was one of extreme optimism in a new bull market. Note the gap comparison, not to mention the peak in the hui/gold ratio, which still hasn't been exceeded. The current picture is that of more of a adolescent bull market. Fundamentals have caught up to the 2004 price levels (note the 50 month ma has risen to the breakdown point in 2004) and we are working off some of the excessive valuation from the first "public" impulse in the sector. I call it public because of the events such as the new gld and slv etf's and promotion on cnbc and the like.

Ok, so what is the new question to ask? I think I want to consider the meaning of either scenerio. First what does it mean if support holds at the bull market trendline in question. Second, what does it mean if support breaks? If support were to hold then we would have to consider the upside limitations of the diaganol present from the previous high that failed to reach the upper trendline. If the support breaks then we consider the validity of the dashed line channel as our new bull market channel. Consider a couple TA rules on this.

a) A market tends to progress as long as the three fan rule holds. This was recently popularized on a public forum. Its a general rule of thumb that the break of the third fibonacci fan results in a reversal. The HUI application here is that the chart I submitted today has two in tact lines unbroken one of which is not even drawn yet. My point is that a break of support here is not a break of the bull market.

b) In a bull market previous broken resistance acts as current support. Another way to say this is that overlaps are warning signs of a new Elliott progression. The application to our chart is that price can actually break the primary support trend line without overlapping the previous support price.

So whats a trader to do? Well remember the point of this blog is to identify the landscape and then apply that understanding to position in individual stocks that can give us the most beta. IMO the controlling trendline here is the 50 month simple moving average. It's as simple as that. The closer you can position to that line the better off you will be. My gut tells me HUI is going to trade in the dashed channel. I beleive HUI is now topheavy due to overvaluation of GG and the lackluster performance of NEM. Maybe that will change suddenly at some nadir. Other stocks in the HUI may take up the slack. I think I'll leave it at that for tonight. On another note I plan to post component charts of the HUI and XAU in the next 2-5 days.

S.M. Himes

Friday, March 9, 2007

The Details

Please be patient as I am currently working to get this blog populated with some decent charts. The charts are static and therefore do not automatically update with the market close. The charts are prepared with stockcharts.com tools and are hosted by imageshack.com. After going to the link you can click on the image to resize for your screen. For this first set of analyses I will be doing long term charts only. I feel we need a big picture view right now to catch the next wave properly. The big picture is not likely to change with a few weeks or even months elapsed. However, do pay attention to the date on each chart you view. Analysis can become dated. I will try to update charts as I see fit or remove them after they become obsolete. My expectation is that many of my picks for the next wave will indeed breakout and start major moves. At such time I will post a shorter term chart showing the breakout metrics.

P.S. When hyperlinking to charts and/or other links on this site I suggest you right click on the link and select open in new window or new tab better yet to provide easier navigation. On a final note for this post please check out the amazon book links. I will only promote this in a post once. I am only promoting books that I personally consider to have great value for our trading profession.

S.M. Himes

Wednesday, March 7, 2007

Blogscope

The idea behind the name of this blog is that the PM sector cannot be traded through traditional chart speak techniques. It's natural for traders and investors to attempt to find a investment theme. In fact its paramount to have a theme you can commit to , or there is little chance you will ever make money. The daily whipsaws will see to that. This sector is replete with deceptive chart patterns. Often you must look under the hood of the chart and consider all the factors that give rise to the chart condition. The PM sector is probably the hardest of all sectors to trade. In my travels in this sector I have often found that the chart pattern on face value is often telling the opposite story. I also find that the truth of the matter can often be determined by careful consideration all timeframes and cycles for the current patterns. Very often the short term time frame may start to look very bullish just as the intermediate time frame is topping. So you have the risk of getting sucked in at the worst possible moment. The reverse can hold true at bottoms. The point is that multiple time frame analysis is often the best way to discern this.

A second technique is Elliott wave analysis. Elliott is no panacea. It is a labeling scheme that can be used to present structure after it has occured. Elliott is not a predictor in the true sense of the technique. Many E-wavers attempt to predict based on what they assume is the valid count. A better approach is to consider all possible counts and make trading decisions based on crossing of key pivots which corroborate the valid count. Shortly I will present my ideas of the two possible counts involved with the PM sector at this juncture. The current picture is widely debated and that provides opportunity to those with the courage to take a stand and be on the right side of the trade. It is not the goal of this trader to pick the bottom. Jeff Kern is the best at that. Rather it is my goal to correctly survey the landscape and provide positioning advice for myself and my friends so that we will be on that right side of the trade and leverage as confirmation occurs.

S.M. Himes

Welcome Post

I am setting up this blog to provide a periodic free charting service to my friends and family and anyone else who has any desire to follow my thoughts in the PM sector. I cannot promise to update this site daily or even weekly. However, I do intend to make important analysis at key turning points in the sector. As we are approaching one such event, my thoughts are now to gather a list of gold and silver stocks and provide long term chart TA for each. Feel free to submit candidates, but please include a reason for your submission. The objective is to identify likely front runners in the next leg of the PM bull market. This should be an on-going effort over the next several weeks. I will post my sector view and methodology in the next few days so you can see where im coming from. Cheers, and thanks for stopping by.

S.M. Himes

Gold Seasonality

Gold Seasonality
Thanks for stopping by. You will find frequent analysis of precious metal index and stock charts on this site. Please feel free to comment on my views or email me directly at

stacyhimes@aol.com

Please Checkout the Chart Links Below the Posts.