Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
The Federal Reserve And Drug Addiction – A Prediction - 27th Jun 17
Charts Show Why Emerging Markets Will Be an Essential Part of Your Portfolio Going Forward - 27th Jun 17
Former Lehman Brothers Trader: I Bet My Reputation That Stocks Bubble Will Pop In A Year - 27th Jun 17
US Bonds and Related Market Indicators - 27th Jun 17
Stocks At Record Highs: Market Sentiment Still Bullish - 27th Jun 17
Stock Market Running Out of Steam - 27th Jun 17
Gold Back With A Vengeance As Bitcoin Bubble Bursts - 26th Jun 17
Crude Oil Trade & Nasdaq QQQ Update - 26th Jun 17
Gold and Silver Ongoing Consolidation May End Soon - 25th Jun 17
Dollar May Become “Local Currency of the U.S.” Only - 25th Jun 17
Sheffield Great Flood of 2007, 10 Years On - Unique Timeline of What Happened - 24th Jun 17
US Stock Market Correction Could be Underway - 24th Jun 17
Proof That This Economic Recovery Narrative is False - 24th Jun 17
Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - 24th Jun 17
Gold Summer Doldrums - 23rd Jun 17
Hedgers Net Short the Euro, US Market Rotates; 2 Horsemen Set to Ride? - 23rd Jun 17
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

Is Major Decline in Gold and Silver Stocks Underway?

Commodities / Gold & Silver Stocks May 19, 2012 - 11:04 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleAll eyes are on Greece which is heading toward national elections six weeks after the last vote. Many feel that a Greek euro exit would be a chance to cauterize a festering wound and move on. There are also those that feel that Greece could be the first of several dominoes to fall, much larger economies such as Spain, Italy, for example.


Meanwhile, Spain’s 10-year borrowing costs had hit as much as 6.5 per cent on Wednesday with the risk of the country paying astronomical prices to borrow in the future. Spain has now issued more than half of its total debt needed for this year, yet concerns that Madrid will struggle to meet its deficit reduction targets for this year and next have pushed the risk premium between German and Spanish 10-year bonds to the highest in the history of the single currency.

What is the most likely scenario if Greece exits the Eurozone? It isn’t pretty for Greece.

The Greek government (if one is formed soon) could legislate that all corporate and personal savings in Greek banks will be denominated in Drachma. The Drachma would swoon so that almost immediately Greek consumers will need more Drachmas to buy one Euro.
 
A run on the banks would be most likely followed by a run on the Drachma, with Greeks constantly converting their drachmas into Euros, or other currency. The drachma constantly plunging against foreign currencies could cause a new crisis of hyperinflation.

Of course, there are examples of other countries that have left what's effectively a common currency zone without suffering hyperinflation. A Greek exit could stimulate the same growth dynamic that's recharged Iceland and Argentina. Greece will once again become a cheap country, attracting tourism and with attractive exports.

Having briefly discussed the political and economic events, let’s move on to today's essay technical part. Before analyzing the recent developments in the mining stocks, let’s see what’s happening in the general stock market (charts courtesy by http://stockcharts.com.).

In the long-term S&P 500 Index chart (related ETF: SPY), we see that prices moved lower this week and are at the long-term support line. Last week we wrote the following:

Taking a relative comparison to the similar rally that we saw in the second half of 2010 with the current price patterns, it seems quite possible that we could have simply seen a correction with a rally now to follow.

This is the long-term support line based on previous highs and if it holds the decline, higher prices could be seen for the short term.

If the support line is broken, however, significantly lower prices are likely. In other words, stocks would be expected to begin a medium-term decline. Since the support line was not broken so far, the above picture is bullish. However, the financial sector provides us with a very different signal.

In the Broker Dealer Index chart (a proxy for the financial sector), we see that the financials are below the lowest Fibonacci retracement level based on the previous rally. Since they have broken below it, further weakness and additional moves to the downside appear likely.

So, all in all, the situation in the general stock market is rather mixed – a bounce or breakdown will tell us what type of medium-term move we should expect: a rally or a decline.

This is what makes the situation similar to what is seen in the HUI Index (proxy for gold stocks; related ETF: GDX)

In this week’s long-term HUI Index chart (if you are reading this essay on sunshineprofits.com, you may click the above chart to enlarge), we see that the current decline has been more significant than previous ones. Only the decline of 2008 was greater. At this point we can no longer say that the current decline is very similar to other declines and that it’s not similar to the 2008 one. This is a bearish development and the RSI levels also suggest that a major decline might be underway. This is concerning, because once the RSI level moved below the thick horizontal line in the chart, downside momentum has increased in the past.

It now seems that after a sharp consolidation, further similarities to the 2008 decline may be seen. This is something which has become apparent only in the past few days. Based on the RSI level and the HUI confirmed move below the 395 level, the outlook here has changed considerably this week.

Summing up, the continuation of the decline in the general stock market appears unlikely based on the long-term support line. However, since we have bearish signals from the financial sector, the situation is mixed for stocks and there are no specific implications for the precious metals sector at this time. The situation in mining stocks is mixed as well (even though miners bounced on Thursday and Friday) as the recent decline make a repeat of 2008 more probable than was the case previously.

 

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, we urge you to sign up for our free e-mail list. Gold & Silver Investors should definitely join us today and additionally get free, 7-day access to the Premium Sections on our website, including valuable tools and unique charts. 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

© 2005-2017 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