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Commodity Indicator Suggests Gold Stocks Are Retesting Their Lows
When commodities go up quickly, gold stocks go down quickly.
James Debevec    

A commodity indicator recently reached an extreme reading. The low for the $CRB (a commodity index) over the last 20 months was on January 9. The 2014 high was on March 6. There were 38 trading days from January 9 to March 6. The indicator we will examine today is the $CRB RSI(38).
 
There were a few times the CRB RSI(38) reached the level it did on March 6. These were in 1980, 1983, 1987, 1988, 2005, 2008 and 2014.



 
 
Click to enlarge
 
When the $CRB RSI(38) hit 71, commodities soon ran into trouble. But gold stocks fared even worse. The following is a table of the peak indicator readings and subsequent gold stock declines which commenced around the same time.
 
 
 
The 1980 and 1983 gold stock declines were based on the Barron's Gold Mining Index (which is weekly) and the rest were based on the $XAU (daily). The reason for this is the data for the $XAU starts in December 1983.
 
The closest signal which did not quite reach the March 6, 2014 reading was on March 19, 1993 (+70.87). It is interesting to note that the top four major signals over the last quarter century were all from March 9 to March 19.
 
As you can see four of the signals led to 56% to 82% gold stock bear markets. The other two led to 24% to 28% declines which lasted about two months.
 
The pattern in the big declines is an initial down thrust which is followed by a rally. Let's look at the initial down thrusts.
 
 

What is interesting is four of the six prior instances had initial down thrusts which lasted 48 to 77 days. Since the peak thus far has been March 14, that would project into a 66% probability of a May bottom. Five of the six declines were from -22.17% to -28.12%. If the $XAU would have a similar decline it would bottom somewhere around 77 and 83. The $XAU bottomed at 82 in June and 79 in December. If history repeats, gold stocks will retest their lows.

James Debevec runs AbsoluteValueResearch.com.
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No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Commodity Indicator Suggests Gold Stocks Are Retesting Their Lows
When commodities go up quickly, gold stocks go down quickly.
James Debevec    

A commodity indicator recently reached an extreme reading. The low for the $CRB (a commodity index) over the last 20 months was on January 9. The 2014 high was on March 6. There were 38 trading days from January 9 to March 6. The indicator we will examine today is the $CRB RSI(38).
 
There were a few times the CRB RSI(38) reached the level it did on March 6. These were in 1980, 1983, 1987, 1988, 2005, 2008 and 2014.



 
 
Click to enlarge
 
When the $CRB RSI(38) hit 71, commodities soon ran into trouble. But gold stocks fared even worse. The following is a table of the peak indicator readings and subsequent gold stock declines which commenced around the same time.
 
 
 
The 1980 and 1983 gold stock declines were based on the Barron's Gold Mining Index (which is weekly) and the rest were based on the $XAU (daily). The reason for this is the data for the $XAU starts in December 1983.
 
The closest signal which did not quite reach the March 6, 2014 reading was on March 19, 1993 (+70.87). It is interesting to note that the top four major signals over the last quarter century were all from March 9 to March 19.
 
As you can see four of the signals led to 56% to 82% gold stock bear markets. The other two led to 24% to 28% declines which lasted about two months.
 
The pattern in the big declines is an initial down thrust which is followed by a rally. Let's look at the initial down thrusts.
 
 

What is interesting is four of the six prior instances had initial down thrusts which lasted 48 to 77 days. Since the peak thus far has been March 14, that would project into a 66% probability of a May bottom. Five of the six declines were from -22.17% to -28.12%. If the $XAU would have a similar decline it would bottom somewhere around 77 and 83. The $XAU bottomed at 82 in June and 79 in December. If history repeats, gold stocks will retest their lows.

James Debevec runs AbsoluteValueResearch.com.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap
Commodity Indicator Suggests Gold Stocks Are Retesting Their Lows
When commodities go up quickly, gold stocks go down quickly.
James Debevec    

A commodity indicator recently reached an extreme reading. The low for the $CRB (a commodity index) over the last 20 months was on January 9. The 2014 high was on March 6. There were 38 trading days from January 9 to March 6. The indicator we will examine today is the $CRB RSI(38).
 
There were a few times the CRB RSI(38) reached the level it did on March 6. These were in 1980, 1983, 1987, 1988, 2005, 2008 and 2014.



 
 
Click to enlarge
 
When the $CRB RSI(38) hit 71, commodities soon ran into trouble. But gold stocks fared even worse. The following is a table of the peak indicator readings and subsequent gold stock declines which commenced around the same time.
 
 
 
The 1980 and 1983 gold stock declines were based on the Barron's Gold Mining Index (which is weekly) and the rest were based on the $XAU (daily). The reason for this is the data for the $XAU starts in December 1983.
 
The closest signal which did not quite reach the March 6, 2014 reading was on March 19, 1993 (+70.87). It is interesting to note that the top four major signals over the last quarter century were all from March 9 to March 19.
 
As you can see four of the signals led to 56% to 82% gold stock bear markets. The other two led to 24% to 28% declines which lasted about two months.
 
The pattern in the big declines is an initial down thrust which is followed by a rally. Let's look at the initial down thrusts.
 
 

What is interesting is four of the six prior instances had initial down thrusts which lasted 48 to 77 days. Since the peak thus far has been March 14, that would project into a 66% probability of a May bottom. Five of the six declines were from -22.17% to -28.12%. If the $XAU would have a similar decline it would bottom somewhere around 77 and 83. The $XAU bottomed at 82 in June and 79 in December. If history repeats, gold stocks will retest their lows.

James Debevec runs AbsoluteValueResearch.com.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
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