GOLD STOCKS STABILIZING NEAR CHART SUPPORT
GOLD BUGS INDEX STABILIZING... We thought it a good time to revisit the situation of gold stocks. We're using the AMEX Gold Bugs Index for this analysis, because we feel it more accurately represents the situation in this sector. [The AMEX Gold Index focuses on "unhedged" gold stocks and, as a result, has been much stronger than the XAU Index]. The daily chart shows the $HUI trying to bounce off potential chart support along its December low. It's still beneath its moving average lines. However, the short-term picture is strengthening. The daily RSI line is moving back over 50, which is a sign of strength. More importantly, the daily MACD lines have turned positive for the first time since the start of the year.
Chart 1
WEEKLY CHART SHOWS TRADING RANGE... The weekly chart shows that a trading range has been in effect in gold stocks for the past year. The Gold Index failed its challenge of the top of the range near 150 at the start of the year. Its now closer to potential support near the lower end of the trading range. We also note that the HUI is trading near its lower Bollinger Band, which often acts as a support line. The weekly indicators are mixed, but improving. The stochastic lines have fallen into oversold territory under 20, which is the first major "oversold" reading in seventeen months. That's encouraging. The MACD lines are still negative. However, they've started to "converge" which is also encouraging.
Chart 2
MONTHLY CHART SHOWS POSSIBLE SUPPORT... The monthly chart puts the yearlong trading range into better perspective (see square). That's because it has taken place above the "support line" drawn over 2000 price high near 100. In chartwork, prices should find support along a previous breakout point. Right now, this chart has the appearance of a trading range taking place within an uptrend. To maintain that long-term constructive pattern, prices need to stay over the 100 level.
Chart 3
GOLD STILL TESTING BREAKOUT POINT NEAR $325... The monthly gold chart shows the commodity also at a critical chart point. We've identified major chart for gold near $325, which was the peak hit during 1999. Gold has been retesting that "breakout" point. Bullion slipped a bit below that level, but today is bouncing up to $326. In our opinion, the testing process in gold is still in progress. At the very least, gold prices look oversold to us and due for a rebound. This is a good place for that to happen. Needless to say, any bounce in gold would be supportive to gold stocks.
Chart 4
