Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

Buying Opportunity for Gold and Silver, Precious Metals Senior and Junior Stocks?

Commodities / Gold & Silver Stocks Feb 06, 2010 - 02:36 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleGold, silver, and mining stocks have been declining very rapidly in the past several weeks and they have now reached (or are even below) our previous the target areas for this downswing. Is this a buying opportunity, or should precious metals investors take additional new factors into account? In the following essay we would like to provide you with our thoughts on the current situation in the precious metals stocks: both big senior companies (represented by the HUI Index and the GDX ETF) and the small-cap juniors (represented by the TSX Venture Index)


Let's begin with the HUI chart (charts courtesy of http://stockcharts.com) for more details.

The precious metals stocks are trading mostly in tune with gold and the general stock market lately (and inversely to the USD Index) and consequently the situation here is very similar to what the situation on other PM markets - namely that there is a high risk that the main stock indices plunge and drag the PM sector with them.

The current move lower in the precious metals has been very rapid and the RSI Indicator flashed a buy signal recently, but once again, high correlation between PMs and the general stock market is a major factor here, and the latter does not seem to have bottomed at this point yet.

The RSI indicator was just below the 30 level, but that was also the case in August 2008, which marked just a beginning of a major move down. Let's take a look on the short-term chart for more details

The value of the GDX ETF (proxy for precious metals stocks) has reached the downside target for this rally, but there are two more factors that need to be taken into account here - volume and the high correlation with the general stock market.

As far as the volume analysis is concerned, please note that major bottoms in PM stocks are rarely accompanied by such a huge volume that we've seen recently. Consequently, GDX may still move lower, unless we see signs of disconnection between PMs and the general stock market.

Moving on to the juniors sector, the comments that we've made in the January 15th Premium Update are still up-to-date. Since we may still be in the early part of the decline on the general stock market, and our Subscribers have already taken advantage of this information, we would like to make it available publicly.

There is one more thing that I'd like to comment on this week, and that is the situation in the junior sector. While this is nothing new to you, if you've been following our commentaries for over a year, it seems that it may prove useful to remind this part of our analysis to new Readers. In the essay posted on September 19th, 2008, we wrote the following:

(...) junior/senior ratio is reasonably correlated with the general stock market. This is another thing that justifies the severity of this decline. As the stock market fell, the junior/senior ratio plunged as well. The marked rectangles on the chart are periods where juniors rallied relative to the HUI Index - it was accompanied by a rise in the general stock market. The question is what will happen next on the main stock indices.

The juniors have been rallying recently, but so did the general stock market, which is another confirmation of the points raised over a year ago. Since the general stock market is likely to move lower sooner or later, it may mean that the juniors' outperformance will also disappear for some time.

Please note that the correlation numbers currently imply that the general stock market has a very strong influence on the junior sector.

Consequently, if you are heavily invested in juniors, you may want to consider switching at least a part of your holdings into big, senior PM stocks, bullion, even cash (depending on your investment preferences). If you are risk averse, switching from juniors into physical gold/silver, seems to be a good idea

Please note that juniors' outperformance ended just a few days after that update had been posted.

The situation on the general stock market appears to have influenced juniors' outperformance as indicated earlier. Since we don't see sings of strength in the general stock market at this moment, and we are not in the final stage of a rally, we don't think that juniors are the best place for one's capital at this moment.

Summing up, the situation on the precious metals market is currently particularly interesting. The PM stocks have been moving sharply lower in the past several weeks, which should normally create a favorable buying opportunity. Still, the general stock market is once again highly correlated with PMs (and with the USD Index), which means that one shouldn't ignore the strongly bearish signals that it generates. At this moment the general stock market appears to be one of the most important factors to consider and in this week's Premium Update (4x bigger than this essay with 14 charts and tables) we focus on the influence it may have on other markets, and consequently on your portfolio - we recommend subscribing today.

To make sure that you are notified once the new features (like the newly introduced Free Charts section) are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife