Editor's Note: HSL is written by the world's highest-paid investment consultant, Chevalier Harry Schultz (Guinness Book of Records- International Editions: 1981-2002). The HSL was the leading gold advocate in the early 1970s, when it called the Great Gold Bull market.
Gold Charts R Us
+ WWW (While We Wait)
Welcome to GCRU #197 on Feb 15, 2006. oooo Thanks for your many thank-U emails, for the Special Flash Bulletin we sent out on Feb 10. Here's some mail samples: "Many thanks, dear Uncle. This is the personal touch never experienced in many years of investing. Love ya. Bob of Waupaca." and "Thanks!!!! You have done us a great favor!!!!!!!!! Carl Turner." and "Harry- Thanks for the heads up. Am already out with good gains. Flash bulletins are great. Thanks! Jim S." and "Thanks for the bulletin. It is greatly appreciated. Message received loud & clear. I hope everyone (thus) has (had) a great (relaxed) weekend. Dev Crandall." oAt the time I wrote the flash it was risky to stick my giraffe neck out (IMO, no one else said sell, let alone sell all) but I've never shied from duty. It paid off. Clearly we're having (had?) a correction. IMO, it's not over, but right at this moment we're having a mini-pullback, which follows all breakdowns. So, we're inbetween stages, thus the GCRU password this wk. So far we've achieved my minimum 540 target & a bit beyond. After a pullback, signs will likely point to my 2nd potential target: 530.
For the record: April gold validated its 1½-month head & shoulders top via a sharp break below its 554.25 neckline support. The H&S 530.20 downside target (basis L/O/C) is only moderately below crucial 532.40-540.20 closing support, which suggests price is likely to find at least temporary support at current levels. The 532.40-540.20 area also coincides with support of the Nov uptrend & 538.10 which is the 50% retracement mark of the Dec low to Feb high rally (note how gold prices have held near to their 50% retracement levels in all of the 4 waves of strength from mid July 2004 lows). Thus, combined, these technical factors form major support. If they fail to hold, a new wave of stoploss triggered weakness could easily take price down to the next level of major support at 500, derived from the Aug 2004 uptrend line. Spinner lines are down trending, but the oversold status of the red timing line raises odds for a mini bounce of some sort.
My clone, Paul, says: "Our Schultz Gold Index (SGI) remains predominantly bearish, although it's not yet clear if the Feb 9 burst of strength constitutes the right shoulder of the Jan-Feb H&S top, or if a larger right shoulder has yet to build. As ever, when H&S tops start to complete &/or break below neckline support, there is a moment of uncertainty, as price action, often starts forming conflicting & bullish down wedges, the outcomes of which will be decided either by forceful rises above left shoulder highs/resistance or via dips to new lower lows. In SGI, a sustained rise above 20.40 would be necessary to question the reliability of the current H&S top. Spinner is oversold, but the determined downtrend in the blue confirming line suggests any price strength is likely to be brief. Next intermediate under-mkt support comes via the Oct & Nov 2004 uptrend lines at 17.80+18.65, with major support of the May 2005 uptrend kicking in at 15.65. As with the SGI index, the very obvious & ever-increasing gradients/trend lines created by the ever-increasing bursts of price strength from mid 2004 lows in the HUI & XAU gold indexes are now offering multiple under-mkt support levels. The trick will be to judge when & which of these support levels will finally provide sufficient foundation for a sustained turn-around in gold shares, & they' will need confirmation via a plurality of decisive base developments that hold on matching support levels. Spinner lines are oversold & yet again give tip for shorterm strength only."
The strongest H&S top patterns in the general gold shares mkt, in order of stock vulnerability are: FCX, MDG, NEM, G-T, GLG, CCJ, RTP, & AAUK. It's ominous that Newmont & Rio Tinto are among them. The majority of Spinner lines & several shorterm down wedges hint knee-jerk rallies may develop, in price, but most are likely to be too short-lived to offer worthwhile trading gains. So despite a handful of mini buy cues, for a few points, most traders should wait for more convincing reversal action &/or look to use any strength to enter new short sale trades at fractionally higher levels.
Bottom Line: we have clearly moved into the second stages of the gold & gold shares bull mkt (via cautious acceptance in the general investment world, including the powerful 8000 hedge funds world) & although downhill pullbacks can be vicious they can also be surprizingly short-lived. Simply knowing when to sell & move to sidelines is a key part of successful investing. Avoiding big losses & leveraging your buying power makes a huge difference to bottom line results. The icing on the cake comes from riding down weakness (ie, shorting), but should be attempted only by active & nimble traders &/or investors wanting to hedge long-term positions. The odds for a mini-burst of modest upticks are growing so we're hesitant to open new shortsale trades at current levels. We prefer to wait until either continued weakness is confirmed via breaks to new lower lows in several gold shares, &/or prices rise to levels that can be sold short just under major resistance (of left shoulder highs) & thus protectable with close (cheap) overhead stops. In either case, it never pays to jump in with both feet when counter-trends are this uncertain, so continue to buy & sell & sell short as the charts dictate, but do so in very small & cautious steps.
Notice how nice it feels to be OUT of this mkt for a change. It's also advisable in the NYSE mkt from time to time. It clears your head, gives U a mental break. Lets U come back fresh in a wk or two. oooo Why did I say sell ALL gold shares, profit or loss? What is the point of keeping ANY? Give me a reason! If prices are going lower U have everything to gain & nothing to lose by selling all. What if I'm wrong? I'm not, but if I am, U & I can buy 'em back at prices about where U sold, by which time indicators would confirm a turn. And we'd buy only the best Relative Strength stks, so it would be an upgrading in any event. Of course one doesn't sell rare coins or bars in safeboxes. ooooo Thanks to Peter Brimelow, CBSMarketWatch, for again quoting me on Monday, & giving us credit (in Wall Street, where orchids are not often handed out) for making a hard sell call. Praise from peers & press feels good. oooo The bullion bounce may be a bit larger than the shares bounce. ooooBy instinct, we gold advocates mentally resist all declines in gold. It's also habit. But U'll be happier (& richer) if U stop resisting. Let it fall! That's easier of course if U sold out (as I told U to do for the last 3wks). But even if U didn't sell everything, relax & enjoy the fall, knowing U can almost certainly buy new positions cheaper. U like to buy at wholesale prices in cameras, tv's, tech, clothes; why not gold shares? oooo We're dropping Anglo Gold from GCRU because 4th qtr earnings loss tripled, due to hedging. Shame on Bobby. ooooWe're also adding FFBC to our WWW section (When We Wait!--like now!), a financial stock with a bearish pattern. A good short, & Wall St looks ready for a fall, esp NAS. If U are long any NYSE stks, U could do with a nice bearish short position to even up your hand. See chart inside. Will add a coal stock soon, when energy sector ready for next leg up. oooo The currencies are quiet to weak. US$ had abrupt uptilt on Tues, verging on a buy. See chart inside the big tent. oooo So, 'til the PS on Wednesday early AM, signing off here late on Valentine's Tuesday. J Bye. Uncle Harry
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PS: On Wednesday morning. Tuesday's close revealed classic, indeed perfect, pullback action. Prices moved back to their necklines in many charts with H&S tops. Most clearly seen in bullion, NEM, XAU, FAL, GAM-T, GLG-T, G-T, NG, & RTP. Look at these charts & learn. If U don't, U will be assimilated/absorbed by the Borg! J oooo Our Black Box says the odds are strong that this mini gold rally (basis April futures) will stop at 560 (+/-) and then move down to 532 area (& hope it ends there). Black Box would abort this scenario if the rally continued up to 562.50 (565 max). We shall see. If Black Box is aprox correct, it will merit an Oscar. ooIf this is only a 10pt rally, U can see it's not worth trading except for scalpers & serious day traders. ooooIf any of U didn't sell EVERY gold share, use this baby rally to unload. If rally ends at 560, we'll stepup shorting bullion or shares &/or switching to WWW stocks, until the correction ends. oooo Oil needs a 61.00 price to hint at a pos. breakout. Till then still feeling for a bottom. Is oversold. oooo Currencies are asleep just now. The US$ broke out upside yesterday, intraday but ended unchanged. This needs watching today to see if any follow thru. IMO, currencies will make a surprise move soon. Watch this space. J oooo Bullish Consensus svc had gold down 3% yesterday but back up to 79% today, at edge of danger overbought zone. B/C makes gold bullish for today, but then neutral/bearish. I agree! oooo Is best U dabble only in one or two short sales recoms until shorterm trends become clearer &/or the mkt clearly starts to weaken again. ooooo Gold opened in Europe this morning minus $2 basis April, & oil up a bit. Not much hint of mood so far. oo Warm wishes from your alchemist Uncle Harry
Harry Schultz
Contact: E-mail: HSLmentor@racsa.co.cr
Fax: Monaco (377) 97 70 31 48
Mail: POBox 622, CH-1001-Lausanne, Switzerland
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www.hsletter.com/GCRUPromo_GoldEagleSpecial.html
18 February 2006
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