The month of February surely hasn't been a friend for gold ands its shares so far…
Sure enough many 'top-callers' are lining up these days in order to justify their warnings since early December last year for a coming correction… As our readers know we took the exact opposite position and made the case for a strong HUI rally after breaching its long-term resistance of 250… We enjoyed the profitable HUI run from 250 to 350 and our discovery portfolio exploded to a 52% gain since November 2005 while others were waiting for a correction. Well, finally the correction came and one could wonder if we missed a sell-opportunity at HUI 350.
Well, as our readers know, I maintain the view that calling tops in a bull market is almost impossible to do successfully.. Let me illustrate this by an example.
The chart of Playfair mining below shows an extreme overbought condition by all means..First of all its share price looks like a parabolic blow-off, its MACD has reached extreme overbought conditions just like its RSI.. Sure enough this chart would invite the 'top-callers' to issue a 'SELL' recommendation..
(Playfair Mining ranks #1 in our Year to Date ranking list. Playfiar is a junior company focused on developing Tungsten resources...)
My problem however with calling temporary tops in an ongoing bull-market is that overbought conditions can stay for a much longer period of time as one would suggest..Now selling Playfair Mining at 40 cents based on extreme overbought conditions would have cost you dearly since Playfair Mining continued its rocket launch all the way up to $1.20 thereby adding another 200% gain AFTER it has reached extreme overbought conditions..
Maybe you would argue that such a scenario wouldn't be possible in gold… Why not? Traders who bought gold at $250 in the seventies thought they made a clever deal by selling it at $450 based on overbought conditions.. Unfortunately for them gold exploded all the way up to $850 in just a couple of weeks time... Please don't think that gold couldn't reach such highs again. It's just a matter of time before gold will exceed the $1000 mark. I strongly encourage readers who haven't read the Credit Agricole Report on gold yet to do so. Credit Agricole just raised its target for gold to $900 and possibly spiking up to $2000. The report can be downloaded HERE
Just in December 2005 many traders decided to sell their gold holdings based on gold in overbought territory.. Well, they've missed the entire HUI move from 250 to 350.. Yes we're in a correction now but that's most probably only a temporary event since this bull market is far from over...
In other words:
It doesn't matter to miss a sell-opportunity in an ongoing bull market simply because there will be plenty of new higher 'highs' were one could sell.. On the other side, missing a rocket launch as we've witnessed from HUI 250 to HUI 350 can't be recovered easily…
Conclusion: The risk is to be out of the market, not to be in…
Now when it comes to the current correction I think it could be close to an end. Why? Because the current HUI run is just too young to die imo. Just think about it. The HUI has been in a consolidation pattern for almost two years before breaking out of its two year resistance at 250.. The previous time the HUI broke out of a long consolidation pattern was in 2003. Then the HUI broke out of its long-term resistance at 150 and rocketed higher by 66% in a five months time frame.. A similar move today would launch the HUI just above 400 pts…
The idea of the HUI topping out now doesn't make much sense since this is the first serious down-turn of the HUI since it broke out of its long-term resistance of 250. History tells us that a powerful bull-run isn't being terminated that easy. The current drop reminds me of the HUI drop in October 2003 when the HUI dropped 30 pts before gaining another 70 pts.
Now let's take a peek at the HUI chart of October 2003:
The similarities with the HUI chart of 2006 are striking:
Again, a powerful bull-run isn't terminated that easy. The HUI run of 2003 was terminated eventually after 4 major attacks on its 50 dma.
Now fast forward to today:
The current HUI run is very similar to the one of 2003. If 2003 could be of any guidance we still have a long way to go since we're just witnessing the very first major attack on the HUI's 50 dma during this run..
The chart below tells it all, the HUI is too young to die yet!
Highlights:
Best Discovery News February 2006
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Eric Hommelberg
The Gold Drivers Report
E-mail: ehommelberg@golddrivers.com
Web-site: www.golddrivers.com
February 17, 2006