first majestic silver

Gold Bear Train Wreck?

President of Graceland Investment Management
June 4, 2013

The gold bears may have gotten themselves into a bit of hot water.   

That’s the daily chart for DUST-NYSE, which is a triple-leveraged bet against gold stocks.  There’s a massive double top pattern in play now, featuring an important RSI non-confirmation.  The technical target of that top formation is $30. 

That’s the weekly DUST chart, which portrays the big picture.  It looks like a technical “train wreck”; almost every technical indicator and oscillator on this chart is flashing a substantial sell signal.

The meltdown on the DUST charts should be good news for gold stock investors, and I think it is. 

That’s the GDX weekly chart, and it looks superb.  Note the red downtrend line, where the price is now.  A move above that line could usher in a lot of momentum players.

Those traders are likely already noticing the powerful buy signals being generated on key technical indicators. 

GDX could make a run towards HSR (horizontal support and resistance) near $38.68, and that could cause immense pain to the leveraged bears. 

The domino effect of ongoing short covering could create a violent rally in gold stocks, much bigger than what has occurred so far. 

I’m especially impressed with the GDX weekly chart volume, which exceeded 100 million shares in each of the last two trading weeks.

Some gold market investors wonder if technical analysis still works.  Are algorithm trading programs run by the banks simply “painting” the charts?

Well, I don’t think anything has changed in recent years.  Charting has always been imperfect, and I don’t see it as any better or worse now, than in the past. 

The larger HSR zones are most likely to be used by the biggest market players, while the “small potatoes” chart patterns have always been a bit of a crapshoot.

So far, junior stocks are leading this rally, but most analysts are nervous, due to the enormous drawdowns that this sector has experienced.

I’m not too concerned, so I’ve been a solid buyer of GDJX and other junior-related plays, deep into my “personal surprise” zone. 

The most wealth is likely built when brave investors place buys at prices they “know” are totally impossible.  Buying your personal surprise zone is like using contrary opinion analysis, but I believe it’s a much more powerful tool.

You are looking at the GDXJ weekly chart.  The volume isn’t as strong as on the senior and intermediate stocks, but it’s still very good, especially with most investors and analysts too afraid to buy.

GDXJ is up about 20% already, from the recent lows at $10.40.  That’s a huge move; annualized, junior gold stocks are rallying at a rate of about 200%. 

After that kind of upside performance, you should be prepared to experience some very vicious down days, but there’s no question that the weekly GDXJ chart suggests that much bigger gains are coming.

I think GDXJ can rally to about $16.73, before any of the weekly chart indicators turn negative.  That is roughly a 60% move from the low. 

Most investors in the gold community probably paid a lot more than $16.73 for GDXJ and their individual holdings, on a percentage basis, but remember that your entry prices are recaptured one price tick at a time.  All upside price movement must be viewed as good news, because it is!

Traders that bought into the recent lows should try to book some light profits now.  Hold some larger “swing” positions, in anticipation of a much bigger rally.

That’s the hourly bars gold chart, and you can see that gold has been grinding higher over the past couple of weeks.  Take a good look at the six green arrows that I’ve highlighted on that chart.  Those are minor bouts of short covering,and I think they are like tremors before a major earthquake.  A short covering “super-rally” could literally wipe most bears right off the gold map. 

All golden eyes should be focused on this Friday’s jobs report.  Almost all the recent economic reports have been weak.  The Japanese experiment with high-powered QE has been a total disaster.  Their stock market has collapsed, because so many Japanese companies do not benefit from a lower Yen.  The collapse in the Japanese bond market has cut off their funding.

That’s the weekly EWJ-NYSE chart, a Japanese stock market proxy fund.  Technically, it’s horrific.  Rather than ending, the decline may be only just starting.  Instead of an economic boom, Japanese QE may create cost push inflation that spreads around the world.  Is the Japanese stock market crash a precursor to a US market wipeout, and a gold stocks “super rally”?  It could happen, and the only question may be, are you positioned to profit, if it does?

 

 

Special Offer For Gold-Eagle readers:  Send me an Email to [email protected] and I’ll send you my free SRT report.  Silver ratio traders need to be on the alert now.  I’ll cover the basic rules of ratio trading for you!  Also, while gold has really gone nowhere over the past 6 weeks or so, my long-only GUTrader intraday gold trading service has booked about $165 an ounce in trading profits.  All trades are closed out by 5pm each day.  If you’re a gambler that likes intraday action, send me an email to [email protected], and I’ll send you the details of this email-based trading service.  Thanks.

Stewart Thomson

Graceland Updates

 

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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form.  Giving clarity of each point and saving valuable reading time.

 

Risks, Disclaimers, Legal

Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is: 100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an investor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:   
Are You Prepared?

Stewart Thomson is president of Graceland Investment Management (Cayman) Ltd. Stewart was a very good English literature student, which helped him develop a unique way of communicating his investment ideas.  He developed the “PGEN”, which is a unique capital allocation program. It is designed to allow investors of any size to mimic the action of the banks.  Stewart owns GU Trader, which is a unique gold futures/ETF trading service, which closes out all trades by 5pm each day. High net worth individuals around the world follow Stewart on a daily basis.  Website: www.gracelandupdates.com.


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