Last Thursday I showed a daily chart illustrating why I thought a short term correction was in the offing for precious metal stocks. Well, here it is. It is always easier to see something like that in advance and tell yourself you are prepared for it than it is to sit through it until it is resolved. Specifically, our old friend the "potential" head & shoulders top is still in play. Recall I wrote on the COW something to the effect that the last thing I wanted to see was a continued rise and roll over (right shoulder) in the 450-475 area. Well, we've got that and now need to deal with the spooky thoughts that accompany it, although a positive is that it is not a long, slow, rolling classic shoulder. It is more of a hard spike down which I like to see in a gold correction. Shake 'em out and mow 'em down quick as opposed to slowly draining their spirits.I am mindful that none other than John Hussman, whose commentary we link to each week on the Analysis page of the website has virtually eliminated his precious metals holdings from the Total Return Fund as he sees commodities making a top here. Oil may finally be topping out and raging commodity bulls, China bulls and global resource story bulls may begin selling all metals in earnest. But as you know, in the mold of Bob Hoye and a very few others, I have been waiting a long time for the commodity trade to top out. Then it is show time for gold stocks, COUNTER-cyclical assets that they are. Either we few are right or the legions of "it's all one commodity complex" devotees are right.
So here we are, watching the hope rally in the broad market trying to regain its footing while cheering an oil top. I expect that a new theme will emerge here in that it will become more widely recognized that commodities have topped out due to the pressures of slowing economies and undeniable economic contraction. The gold stocks are taking their predictable hit as even dear old Uncle Buck gets some life. The weekly chart shown above gives the parameters; the 70 week EMA has worked nicely as support. There is also that very strong lateral support dating back to 2006. Add in the would-be neck line and you have a cluster of confluent support in the 385 to 400 range. If those supports should fail along with MACD and TRIX breaking below zero and AROON trend turning down, it will be time to consider my ongoing beliefs wrong. But until such time this remains the perfectly predictable pullback already foreseen and is considered opportunity - which for me is defined as cheap juniors getting even cheaper. You buy gold stocks (and gold itself for that matter) on opportunity, not as part of the euphoric momo.
