The HUI index: Young Woman or Old Hag??...

August 2, 2006

Many of you will have seen, at some point in your lives, the classic optical illusion picture, shown below, in which you at first see either a young woman, or an old hag. Some might say that which you see first is a function of whether you are an optimist or a pessimist, in a similar way to whether you view a glass of water as being half full or half empty.

In a similar manner it is possible to see in the Gold stock indices at this time either a Head-and-Shoulders top, or a Head-and-Shoulders bottom, and correctly deciding which of the two it is will determine whether you lose or make money in this market.

Being naturally skeptical and suspicious types, at least as far as markets are concerned, we saw the old hag first, which is why we have maintained a rather cautious, bearish bias on the site as the correction in Precious Metals stocks has unfolded. However, we have the advantage that we study not just the price track and its derived indicators, but the volume pattern. This is very important as volume is the lifeblood of the market, and correct interpretation of it frequently gives us an edge over other investors - we are often able to predict breakouts and buy before them. The bearish volume pattern in stocks such as Goldcorp has been a deterrent, however, it has rapidly improved, and volume in many other stocks, particularly juniors, has dwindled to a level normally seen at the end of a corrective phase, when selling has been exhausted and the pendulum has swung to the other extreme. Thus, at the weekend, we came down off the fence and joined the bullish camp.

Being skeptical and suspicious has certain advantages, for it is surely better to start out thinking you are stuck with an old hag, and to find that she later morphs into a beautiful young woman, than the other way around.


Clive Maund, Diploma Technical Analysis


2 August 2006

Goldschläger and Goldwasser are liqueurs containing pure gold flakes.