Golds (HUI): On the Verge
of a Breakout
Contributed by Olaf Sztaba
NA-Marketletter
www.na-marketletter.com
Apr 24, 2007
(Weekly chart with the 40-week
moving average)
For the last year the HUI index
has been "technically immobilized" in a lengthy consolidation
pattern roughly between 280 and 360. The failure of February's
rally to penetrate the upper boundary of this range resulted
in a sharp sell-off, which provided an excellent buying opportunity
(Update: Gold & Gold stocks: "A healthy pullback on
a bullish playing field", March 5, 2007). Recently, the
HUI index had a rally to its key resistance and reached the 368
level.
Technical and cyclical evidence
suggests that the HUI index is on the verge of a major breakout
from its consolidation pattern. Here are the reasons:
- Cycles point to late June/early
July as the next top for the market and the Gold sector before
a larger correction starts,
a
- Gold and Gold stocks are usually
strongest toward the tail end of a bull market,
a
- Long- and intermediate-term
moving averages continue to point upwards,
a
- The HUI index has outperformed
the price of Gold in the last few weeks, which is usually a bullish
sign,
a
- Numerous Gold stocks have
already had multi-year breakouts (ELD, GBG, GSC, HL, MFL, RNG,
KGI, and ITF, to name just a few),
a
- Professional money managers
still avoid Gold and Gold stocks at large,
a
- Bullish sentiment is not yet
at extreme levels,
a
- Bad news has been handled
well by Gold and the Gold sector.
Historically, breakouts of
this nature are accompanied by increased volatility around the
breakout point. The market's "indecision" is usually
short-lived and gives way to a resolute move to the upside. Therefore,
we view the recent pullback as part of a bullish picture overall.
A breakout from an extended consolidation pattern is usually
a very confusing and nerve-wracking process as investors show
a marked degree of caution. Therefore, focus on stocks that have
already overcome their key resistance zones and reached new 52-week
highs.
Written on Apr
23, 2007
Contributed
by Olaf Sztaba
Email: osztaba@na-marketletter.com
Website: www.na-marketletter.com
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