Sunday, November 9, 2014

Gold Mining Shares Record The Highest Weekly Volume In History

When there is something unusual in stocks it is very often marked by high trading volumes. In most cases such situations occure during market reversals. For example, in a bear market, high volumes happen at dips when most of the participants panick and a few big investors do the opposite.
Let us look at the charts below:

The first chart shows the price action of precious metals producers (GDX) and the second one relates to juniors (small PM producers, developers and explorers - GDXJ). Both charts have the same element - the last week was a period of the highest volume in history of GDX and GDXJ.
I do not claim this a bottom in these shares but definitely something important is happening in the whole PM shares sector.

Tuesday, November 4, 2014

Big Precious Metals Miners At Their Multiyear Supports

It is a very interesting situation in the gold sector. The biggest miners are at their multiyear supports - technically speaking they do not have too much room to go down further. Of course, in theory their shares can go to zero but this is just a theory applicable to all stocks.
Well, look at the charts below:

The best examples of these multiyear supports are evidenced in the charts of  Kinross, Anglogold and Barrick. Their shares have been trading at the levels not seen since the beginning of the last decade gold bull run. It is really impressive. The three PM behemoths  have done nothing while gold prices are much higher these days than 12 years ago.

Sunday, November 2, 2014

Gold Sector Decimated But Juniors Are Being Accumulated

Last week the entire gold sector was decimated. Speculators were throwing gold stocks in the towel.
Many very good companies (low cost producers with decent reserves / resources) went down 10 - 20%. Simply, the sector crashed.

Now it is impossible to find a single positive opinion on gold, silver and related companies. Even PM perma bulls expect gold to fall to $1000 or around that number.

In my opinion, these days we observe a typical picture of the bottom in the gold sector forming. What is more, it should be a very hard bottom, which means that the prices would not go below this bottom for many years to come.

One of the best signs of that process is the strengthening of  juniors shares. Look at the chart below:

The chart shows a few juniors (exploration and development companies) - in most cases their shares have been going up since the end of 2013. The strength in that sector is better visible in the charts below - they show the relative strength of the sector against the whole PM sector:

It seems that juniors are being accumulated and the main reasons for that are:

- big producers extract gold and silver all the time, no matter the prices of gold and silver (it is quite different behaviour than, for example, this seen in the uranium sector - the uranium miners in most cases are not extracting uranium due to very low uranium prices - this is very logical and economically right decision)

- therefore they are depleting their resources

- in the last years there are practically no big discoveries of gold / silver deposits

- so the only way to replenish the resource base is to acquire juniors' shares

- during the last leg down in PM sector (which started in 2011) the juniors shares were decimated

- presently their shares are very cheap

 - therefore it is time to acquire juniors shares by big PM producers

- the recent strength in their shares supports that thesis.

Saturday, November 1, 2014

U.S. Equities - Short Term Selling Signals and Long Term Negative Divergency

So we had a correction to the upside in the U.S. Of course some would say (sorry, not "some" but nearly "everybody")  we had a correction to the downside and now we are again in the uptrend.
Maybe... as the legendary trader Jesse Livermore once said that the stock market is constructed in such a way to fool most people (me as well) so everything could happen.

But let me introduce two charts, which seem to confirm my stance. The first  one is a short term look at the U.S. stock market:

The lower chart shows a 10 day simple moving average of the NYSE advance - decline issues indicator. This is one of the best short term indicators of selling and buying pressures at the U.S. stock market. Presently the indicator says that we are in the short term selling zone.

Now, let us look at the long term indicator:

This chart shows the behaviour of VIX (VIX measures the stock market volatility). Looking at this indicator in the long term we can spot that at inflection points it shows divergencies with the stock market. For example in 2009 this indicator was rising while the stock market was falling - shortly after that the stock market started its long bull run.
Presently, similarly to 2007, it is showing the negative divergency with the stock market which points to the incoming problems for the bulls......

Wednesday, October 22, 2014

Gold Denominated In Other Currencies

Sometimes it is good to look at things from a different perspective. Let us look at gold denominated in U.S. dollars and other currencies:

As you can easily spot, when related to other currencies, gold looks not so badly as in the case of U.S. dollars.
For example, gold denominated in euros is approaching the resistance level (and not support as gold denominated in U.S. dollars).

Sunday, October 19, 2014

A Quick Look At U.S. Economy

Banks are vital entities for every economy. If banks do not lend there can be no real growth. When we look at the balance sheeet of the American commercial banks we can spot that since the last financial crisis banks have been behaving very prudently.

source: FRED, Simple Digressions

As you can see, between October 2007 (just before the last financial crisis began) and October 2014, loans granted by the American banks were growing 2.4% per year; in the previous cycle, beteween Oct, 2000 and Oct, 2007 the c.a.g.r. was much higher: 9.5%. So in the current business cycle the banks are very reluctant to grant loans (or, it is better to say, the businesses are reluctant to raise loans). And remember that interest rates are standing at  nearly zero!

But look at the cash assets. In this business cycle the cash assets were going up 38.4% per year. These cash assets of the American banks ($2.9 trillion) are nothing more than deposits held at the FED. Simply, banks have sold U.S. treasuries, which they held before, to the FED and the cash obtained from those sales was deposited at...the FED.

For many years the talking heads were telling the public that the American economy is healthy. No, it is not. Businesses do not want to borrow money, which has a negative effect on investments.
What is more, the money artificially created by the FED through many stages of quantitative easing just went back to the FED, not to the economy.
On the other hand, it is a very positive phenomenon. The businesses, seeing artificially low interest rates, did not subscribed to it. They are just standing aside.

By the way, I recommend the economic insight offered by two American economists: Van R. Hoisington and Lacy H. Hunt. Each quarter, these guys publish excellent analysis on American economy. Here is a link to the last piece.

Wednesday, October 15, 2014

U.S. Stocks Are Going Lower

There are two strong signals indicating that the U.S. stocks bull run is finished at the moment.
Here is the first one - the old good Dow Theory:

As you see, both indices have broken their supports which were the secondary lows. This is a confirmation the stocks are going lower.

Another chart:

Value Line Geometric Index has also broken its suport - we have a similar technical situation as in 2007 (see my previous post here).
Well, now I am waiting for a major correction to the upside.