Wednesday, April 25, 2007

Chart Updates

I updated the following charts tonight. As usual many stocks are on different cycles so be careful out there.


Thursday, April 19, 2007

The XAU/GOLD Ratio , a Lesson in Patience

The XAU/GOLD ratio chart has often been used and misused to find bottoms in the sector. I can understand the desire to call a bottom after a long correction. Somehow I think this desire is itself incompatible with the kind of sentiment marker we are looking for at a true bottom. The ratio trends down after a top is made and typically forms some kind of triangle as it falls. There are several characteristics worthy of consideration. First and most important, price will not reverse until its time. Time typically is up when there is no other choice for it to be up. Another way of saying this is that trends like to stay in place longer than we expect. Fortunately we usually have a triangle formation to help us understand when time is up (ie; near the apex of the triangle). That brings us to a second characteristic (the capitulation). Capitulations typically break the triangle in some fashion. This is the bulls in your face way of saying "no nellies allowed" . Capitulations in the ratio suggest the maximum share discount and mark the bottom of the correction. They print at the extreme of the correction and often look like a breakdown in the sector. With that background let's consider the current landscape as shown in the chart. The secular low was made in 2001. Since then a very shallow uptrend has been in place. The whole decade of price action has been very poor on a price relative basis compared to the whole of the bear market that preceded it. This is really amazing when you consider the potential for this bull market going forward. We essentially have 3 bottom formations and one additional one in the making. I like to use alternation in analyzing the bottoms. You can see that the alternate bottom has a series of hammers that ultimately formed the bottom. It is poor analysis to say a bottom is in place when you first see a .20 reading. What you need to see is a positive divergence (macd to price) and time to be up in the triangle formation or capitulation stage.
In terms of the current correction we have reached the bottom of the range and have been there for awhile. The problem with calling a bottom now is that the triangle formation is very shallow and thus there is no forcing function on the pattern yet. That doesn't mean we can't blast of now, it only suggests more time can elapse at this ratio level. This leads me to my next point. How do metal price, sentiment, and the ratio chart combine in the final phase of the correction. It is important that sentiment return to a negative level for a lasting bottom to be in place. It has been my view that the gold chart continues to stay strong at this stage, but develops a sneaky divergence near the end of the correction that creates a fear of breakdown in the gold bugs hearts. It's this bogus chart footprint that leads to the final bottom in the ratio chart. The typical arguments tend to lay in the wave count interpretations and misinterpretations. It is my view that the wrong count will become likely in the view of analysts at precisely the time when we need a capitulation in the ratio chart. Now considering the current pattern in the gold chart we have a powerful rising triangle, or do we. Absolutely nobody knows what will happen next. It is my opinion, however, that once the bulls are exhausted on the current run a negative pattern will present itself in the gold chart. This may have already started with the recent outside reversal. This will drive the ratio to its nadir as bulls prepare for the breakdown and get cashed up for the next great buy. I won't suggest a specific time and price level at this point where that might be, but I hope these fundamental concepts can help provide the tools to know when we are looking at the low.

S.M. Himes

HUI Bull Trap Possibilities

Heres my warning post. Troubles brewing in Asia and the dollar looks very close to some kind of tradeable bottom. A bull trap can come at any time, and a high may be in place. Alternatively we may have a final run to pog 730. The risks should be obvious.

S. M. Himes

Tuesday, April 17, 2007

Trading in the Groove

If you're a trader you are well aware that the current situation in the PM market is dicey. This is a point where we need to use some very simple tools and not get over complicated with cycles and counts. I wont begin to suggest I know if this is a valid breakout. All I know is price is rising and near significant resistance. Not knowing if there is sufficient power in the cycle to push through, all I can do is exercise trading discipline to navigate the waters. Thats pretty much what tonights chart is for. The chart is bullish until proven otherwise. To me it is clear that this hourly chart must stay in tact for long trades to remain open. I have no problem leaving money on the long side when its positioned from the swing lows. However, we are currently near swing highs so the risk has increased substantially. If resistance turns to support then we will be well positioned by using our tools and discipline.

S.M. Himes

Sunday, April 15, 2007

Watch This Sleeper

Every now and then I will mention a stock I think is on the verge of a move. I've had my eye on this one for a long time. There are some good fundamentals behind the company as well as a decent chart. Unfortunately I can't post a marked up chart tonight since stockcharts is acting up. So check it out for yourselves here. For what it's worth, some of the things I look for in a stock that is "ready" are summarized below.

1) A change of hands from sellers to buyers on at least a intermediate term timeframe.
2) A clear set of higher lows preferrably rising into a resistance band.
3) A compression of intermediate term bollinger bands.
4) Confirming technical indicators, aroon, macd, adx, williams%R. At least 3 should confirm.

Wednesday, April 11, 2007

HUI is About to Declare a Winner

Here's some closeup ramblings for tommorow. This is a sneaky chart. Sneaky is what the bulls do best. I don't want to spoil the party, but the more I consider the chart the more bullish it looks. I guess we'll soon see. You make the call.

S.M. Himes

Tuesday, April 10, 2007

Was That a Major High We Just Saw Today?

Daily charts can keep you guessing. Thats why I prefer the monthly charts to keep me on track. I have posted above yet another monthly chart of the HUI index with tonights thoughts in lieu of the bearish overtones of todays possible 8 run high in userx. It's still early in the month, but the current monthly candle does not look bearish. Of course that can change by the end of the month. I will not suggest any outcome is certain based on TA. Jack Chan is absolutely correct in that technical analysis is nothing more than a educated guess. So all the pretty charts are no more than an attempt to understand what IS happening, not what will happen. Anyway, in terms of cycles, Elliott wave rules suggest that patterns tend to alternate. This is quite intuitive as the market participants become expectant of the previous landscape and therefore tend to get on that side of the trade. We all know the crowd is wrong, so the alternate pattern often plays out. Applying this to the HUI index we have to go all the way back to the 2002-2003 fractal. What strikes me about this pattern is that the price action was really pretty close to the power uptrend line in control. Failures to breakout were frequent, right up until the very last bull trap. I had some trades going on that one and was really frustrated by the action. The pattern now is similar. Price action does not want to get much extended past the power uptrend line in control. Of course it's a different line this time, but the action is the same. Ultimately, it took a failed double top to get the action going. The final whipsaw involved a run from the highs directly to trendline support. The large rise followed. IMO , the current pattern is in the double top approach stage. If price stays firm and breaks the 360 barrier soon, then I expect a bull trap near the high followed by a sharp decline to a suitable buy. That buy should be the main trendline support, which is now somewhere near 325. Of course this is just a educated guess based on some rules I pay attention to, but it is certainly plausible. Of course I will have a trading plan for a breakdown here or a breakout here. Key support for a triple top breakout near 360 appears to be about 345. I'll be watching.
S.M. Himes

Thursday, April 5, 2007

HUI Big Picture Thoughts

Now that we have a long weekend some of us can take some needed time off and others who just can't stay away from this stuff will contemplate investment themes going forward. I guess you figured out which category I fit into. I'll kick the show off with this HUI cycle diagram. The metals have been very strong in recent days, but many of us smell a rat. Are we deluding ourselves into missing the boat or does the correction really need more time. Well, my view is that this market will tend to take you to extremes before showing you whats really going on. It's pretty clear to me that the HUI index wants to break out of that little rising triangle. We've been through this before with a smaller version of the rising triangle. Now we have a longer pattern, which I think will indeed breakout. That should be the hook or bull trap if you will. The HUI needs an extreme print to seal the deal for the next corrective wave down. Some of you think that happened today. My opinion is that we have a rising triangle and it will breakout and make a run for the old highs. It's probably a moot point as the end result should be a move to the bottom of the range.

I'm convinced the meaningful channel in this bull market is the one I've drawn. What truely defines a structural bull market are the support lines or "ice" created by previous consolidations and breakouts. It's important that these zones do not overlap to ensure the integrity of the structure. Therefore, I do not get too excited about a break of the log trendline off the 2001 lows. Yes it's a multi year trendline. Now overlap into the previous trading range under 250 would get me concerned that a new channel would be required. Anyway, you see my point.

So in conclusion, when analyzing a market look for something for both the bulls and bears. There usually is food for both.
S.M. Himes

Gold Seasonality

Gold Seasonality
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