The only opinion that matters is the message of the market. The market is bullish on gold and miners. This means I am bullish on gold and miners until that message changes.
TA’s “three taps and out” has been complete. This suggests that the breakout is already underway. While geometry suggests that the shortest distance between two points is a straight line, this truism often does not see practical application within the markets. Fear and greed, i.e. emotional states combined with leverage, create ebb and flow despite the technical breakout and clear up trend.
The correlation between gold and the gold shares also ebbs and flows. While the historical correlation between the two is strong, fear and greed will stretch it over the short-term. Smart money, possessing the nerve and discipline to act against the consensus, knows that these divergences provide excellent buying opportunities.
The following charts reveal how the correlation between gold and the gold shares breathes over time
Historical Correlation: Gold Stocks and Gold
2009:12
2010:12
2011:04
Best Regards,
Eric
Eric,
I really like your site because no matter what you maintain your bullish position, especially with respect to the miners. I think we're at a critical juncture here once again with the whole sector. I too believe in much higher prices for the metals and I still feel that the mining stocks should be much higher. Recently you did a great piece on the historic undervaluation of the stocks versus the metals themselves. Right now the mining stocks (GDX for example) are riding above a major support line going back from the peak from before 2008. The GDX broke through that level around 54 last year, ran up and hit 64, then got smashed by the shorts down to 53 in January. Now here again, we got another beat down to around 53 again and got support. We are still oversold. I did liquidate some big positions but held core positions. My mistake was getting back in too early, but I'm reloaded now and I still feel that these stocks need to ramp up in a big way. It seems way, way overdue. I like your historical analysis that we could be pushing away from shore after a 30 year consolidation! What I'd like you to do is periodically post the GDX to Gold ratio even more often, especially now as we enter into what could be a huge rally in the shares as I do believe in your "Three taps and out" thesis. Once we get this rally up to 64 in GDX again, and then through that mark as I anticipate, this is where your posting of the ratio will be very helpful as next time I will be selling into that big rally as I would like to miss out on some of these selloffs! It's unbelievable how they can beat these shares down! The manipulation is just crazy. I think that part of this bull market that will drive these shares higher is the day that some of the big ETFs like GLD and SLV start having some big issues that J.S. speaks of in his book. If that happens, it will first and foremost be wonderful but it will also possibly be a key to unlocking the miners into a new phase of their bull market. You've been a great help and I look forward to more great info. Do you think we're on the cusp of the big breakout rally at long last in the shares?
Sincerely,
Noah
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