Mining for Winners in Any Market

Posts Tagged ‘charting gold stocks 2010’

, , , , , , , , , , ,

Head and Shoulders Pattern and Rising Wedge on S&P500

In Market Analysis on August 23, 2010 at 7:38 pm

Get a FREE 30-Day Trial of my Members-Only Premium Stock Analysis Service NOW!

pastedGraphic.pdf

The rise in equities from March 2009 to April 2010 lacked one key ingredient in a bull market: volume confirmation.  There were many technicians who pontificated why the lack of enthusiasm of the uptrend existed.  Some said that it was the 2008 de-leveraging of hedge funds that caused the decreased participation.  I was never convinced of this far fetched  argument because on each correction volume increased significantly.  I’ve been skeptical of the claim that this time will be different. While studying charts over the years, one indicator I am always loyal to is volume.  It is the enthusiasm in a market which shows if a rally or decline is convincing.

The H&S pattern is one of the most reliable chart patterns.  The S&P 500 is showing an apparent head and shoulders top with volume confirmation. One way of affirming the validity of this formation is by checking the volume on the right shoulder, because  the right shoulder is the first rally in the bear market.  The low volume shows a lack of confidence in the previous bullish trend.

The sharp breakdown of the S&P 500 following after the rising wedge pattern tells me that this bear market is likely to continue. Several indicators, namely the bearish death cross, break in trends and poor price volume along with the bearish head and shoulders pattern and rising wedge all combine to weigh heavily against equities.

pastedGraphic_1.pdf

GLD is experiencing a “v” formation after coming to long term support and a 50% fibonacci retracement.  On July 28th, many of you have read my views and why I believe gold was at a buypoint, contradicting the consensus of market timers at the time.  Now I believe gold is in need of much needed respite in the trend and a shakeout before continuing into new highs.   Gold buying has also gotten some TV airtime from a few famous commentators who are now turning bullish on the metal.  That really concerns me, as it is a contrary indicator.  We may see a healthy correction so that GLD can clear the previous resistance and make a move into new highs.  A healthy correction could also provide an excellent market entry point for a trader who wants to add to their gold holdings before a new breakout.  If you study the move into new highs from September of 2009 you will see the coil formation where it had three pullbacks to support.  These formations are bullish as they provide the conditions to generate a high percentage move.  For specific stock selection visit my website at http://goldstocktrades.com.

pastedGraphic_2.pdf

GLD is overbought and if you are trading short term, do expect a pullback to at least the 50 day moving average to find support or possibly shakeout the traders who bought in after it crossed the 50 day moving average.

, , , , , , , , , , ,

Relative Strength Signals Confirm Breakout in U.S. Gold (UXG)

In Stock Movers on June 24, 2010 at 10:59 am

El Gallo’s story is continuing to impress the mining community.  U.S. Gold has invested a lot of capital into drilling El Gallo this year and believe that by 2013 they can be producing up to 10,000,000 ounces of silver a year plus 35,000 ounces of gold.  This drilling program has been extremely successful.  They have expanded the mineralization and are now showing a potential to connect different zones to have one large shallow open pit mine.  In two weeks the initial resource estimate will be published which should add momentum to this gold and silver growth story.

UXG’s shares have significantly outperformed mining stocks and gold bullion this year.  Since our initial recommendation from last May, UXG is up close to a 100%.

Even though UXG at the moment has little institutional sponsorship other than the CEO himself, I believe the investment community is coming to realize that the company has an impressive growth story.  That has been highlighted technically over the past 12 months.  You are welcome to view archived posts where I have shown the incredible strength these past 6 months.

Since investing in the mining sector since 2001 I have found relative strength to be a key indicator of where capital is flowing.  It is easy to identify which companies are experiencing increasing demand compared to a benchmark.  Since I consider myself a miner of mining stocks, I spend hours researching the mining companies which have the greatest ability to outperform gold bullion and the mining sector.  Even in a great precious metals bull market one can underperform if not aware of how to use technical analysis and relative strength. 

This chart shows the relative strength of UXG to the gold and silver index.  Clearly the breakout to new 52 week highs is confirmed by its bullish strength.  The longer the outperformance of price and the confirmed breakout leads me to believe its growth story going forward. 

Using relative strength one can evaluate if this recent breakout in UXG is sustainable.  The chart above shows a major breakout for UXG confirmed by relative strength.  I believe that this stock can significantly outperform the sector over the next few years as did Goldcorp did from 2001-2005 while Mr. Mcewen was CEO. 

Over the past 6 months UXG has significantly outperformed Mcewen’s former company Goldcorp.  While Goldcorp is up less than 15%, UXG is up close to a 100%.  This further emphasizes how important it is to use relative strength to really profit in precious metals bull market.

Price volume action is excellent highlighted by the big volume breakouts.  I believe UXG is a great long term growth story.  New investors who want to get in should wait for a pullback as it is short term overbought.