Precious Metals Breaking Down! 3 Amigos To Abort? 4 Horsemen To Ride?

I am not trying to be a wise guy with the first half of the title (it’s a goof on alarmist media), but if you were not bear biased or outright bearish on the gold sector’s daily and weekly technicals, and its macro and sector fundamentals by now all you have left are the alarmist headlines now telling us about H&S breakdowns, HUI/Gold ratio bearishness and whatever else is going on out there in media large and small to scare the lowly gold bug.

It’s hard to feel bullish now and that is the point of markets. Sometimes you have to do what is hard. Let’s remember that we’d planned for the sector to bottom out in December or January all along and it is only dutifully working to that script. The time for caution was back when HUI topped out at 220, and extreme caution when it lost key support at 195-200. Now the sector is on a plunge that could be the final act of this correction. Either be thinking brave or be sidelines (or both, laying in wait).

I’ve held the items I’d decided to hold despite a bearish orientation (many individual items are far from the outright tanking status of HUI and the mining ETFs). Personally, I believe it is time to be thinking like a predator, not a victim.

Here is what last weekend’s I had to say about the version of the chart (below) we use in the weekly report. We delineate “bounce” vs. “rally” in that a bounce is terminal and only to be played by nimble traders; a rally would be something that the rest of us can make some $$$ on.

Daily HUI has been a pain in the ass. That’s the best way I can describe it. The would-be bounce has simply not gotten underway, although it has not broken down either.

We have noted that a ‘bounce’ would be capped at the 195-200 area, but with the upcoming seasonal (and tax loss dynamics) in mind maybe the general sector is building up pressure for something better than a modest bounce scenario.

Again, I want to stress that I am not bullish because neither the fundamentals nor the technicals instruct that way. So whether or not it [a bounce] generates the aspect I like best about current positioning is the theoretical “counterbalance” service it provides [to other holdings].

That said, HUI has been testing short-term support for a month now and often the more tests the higher the likelihood that support will give way (it works the other way when an index or stock are banging upward against resistance). So let’s also keep in mind that a trap door could open for a final flush before a rally gets going.