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Point & Go Figure: HUI vs. Gold




Market Overview:

The broad bullish percent indicators for the NYSE and the Nasdaq Composite are now negative for the first time since last October. Meanwhile, both the NYSE Percent Above 50-day Moving Average Indicator and the Nasdaq Percent Above 50-day Moving Average Indicator continue to move lower, moving below, the 30% level below which they typically form a short-term trading low.

The High-Low Indices for the NYSE and Nasdaq are both in Os but the NYSE High-Low moved to 23% with yesterday's action and the Nasdaq High-Low is nearing the 30% level below which relief bounces can occur.

With the overall context now negative, however, any move higher should be short-lived and in my opinion provide an opportunity for longer-term sales or hedges.

Charts of Interest:

Minyan Frank asked about the performance of the gold stocks as measured by the Amex Gold Bugs Index (HUI) versus the metal itself. Below is a chart of the HUI vs. Gold.

The HUI vs. Gold chart has trended very well over the past four years and changes to the downside in the ratio have generally been times when one could advantageously buy gold stocks instead of the metal itself, which has a negative carry; it costs money to hold gold. However, one key difference this time is that the main indicators for the stock market are negative, meaning these stocks are operating in an equity environment that is controlled by supply.

If one is bullish gold, and using the shares to gain exposure, and equities in general are positive, then buying the equities on pullbacks makes sense. However, if one is bullish gold, and equities in general are negative, then buying them on pullbacks is double dipping in risk, picking up exposure to both the metal and to the equities asset class. In my opinion, sticking with the metal makes more sense, because at the end of the day, stocks have a tendency to act like stocks.

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Position in gold

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