Wednesday, April 28, 2010
Good Day For Gold Stock Bulls
Great day today in the Gold mining patch. Haven't seen many good strength days in the major Gold stock mining indices on days when Gold is flat to down lately. We are going to re-test the December highs in the Gold price soon, but the exact path is uncertain. After two big volume days in major miners and mining indices, we may need a day of rest in major Gold stocks.
With that thought in mind and given the very short-term overbought condition they were in during today's session, I took profits today in my Goldcorp (ticker: GG) and GDX mining index option positions near today's highs. I am letting my bullish option positions in GDXJ (25 strike price August calls) and Yamana Gold (ticker: AUY; 10 strike price July calls) ride. I am also letting all my various individual Gold mining stock and ETF positions ride. My hope is to take the money from the options trades I closed today and put it into more GDXJ calls. I may get back into GDXJ as soon as tomorrow morning depending on the price action. I'll start buying GDXJ if it gets back into the 28 range.
Here's a 15 day GDXJ intraday 15 minute chart thru today's close to show the recent chart action and my micromanaging thoughts:
And here's about where I think we are in Gold stocks for this intermediate-term move, using a 4 month 60 minute intraday chart of the palladium ETF (ticker: PALL) thru today's close as a potential rhyme:
Short term noise aside, we are in a perfect spot for Gold and Gold stock bulls. I believe it would take a market crash to derail the pending move higher in Gold stocks. In such a scenario, Gold would be a better play than Gold stocks. I think it's too early for another crash, but we are certainly going to resume the bear market in general stocks soon in my opinion.
Speaking of resumption of bear markets, several markets look to have rolled over on 18 month daily charts, which is a bearish omen for all the global stock markets that haven't rolled over yet. In no particular order, here are a bunch of them.
First up, Shanghai ($SSEC, see previous post here):
Hong Kong ($HSI) also looks like it is breaking down. I think my previous prediction on this index was pretty good (if you agree, click on one of the ads on this blog and make your not-afraid-to-ask proprietor a few pennies so he can buy more Gold!):
Next up, Portugal ($PTDOW):
And here's Spain ($SMSI):
The final PIIGSie is Italy ($INE, see previous post here):
No need to show the Greek stock market chart - they are suffering enough! An important lesson is learned using the current examples of the European markets above. People think if the Dollar is trashed that the U.S. stock markets will rise. These countries prove it is foolish to rely on this relationship between currency and stock markets. The Euro is going down hard, bond rates are going up for these European countries, and the stock market is also going down. Where the heck should these folks put their savings? I assume you know my answer to this question. If you're not sure, a picture is worth a thousand words. Here's the Euro Gold price over the past 6 months thru today's close (chart courtesy of goldprice.org):
Gold defeats paper. It's just the cycle we are in, homie. The Dow to Gold ratio will get down to 2 (and we may go below 1 this cycle) and then things will reverse and other investments will outperform Gold. Wash. Rinse. Repeat. Go ahead and buy general stocks for the long haul if you want to. I'll stick with hoarding a shiny, barbarous relic.