'Huey's' Looking Haggard These Days, But...

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Includes: DGL, DGLD, DGP, DGZ, DZZ, GEUR, GHE, GHS, GLD, GLDI, GLDW, GLL, GTU, GYEN, IAU, OUNZ, PHYS, QGLDX, SGOL, UBG, UGL, UGLD
by: Gary Tanashian

Summary

The gold sector has been in "bounce only" mode since the big correction began last summer.

It is approaching another oversold point from which it may bounce.

But the macro fundamentals that matter will be key in determining what the next bounce is (i.e. real or Memorex?).

HUI is torn, frayed and downright bearish. What's more, it's been bearish since it started to drop from the SMA 200 failure point.

In NFTRH, we managed bounce #1 (off the Dec. low) as just that, a bounce. Then we managed bounce #2 as just that, a bounce. It doesn't take a trained eye to see why; only a rise above the October high would have set an uptrend for bounce #1 and a rise above the February high would have set an uptrend for bounce #2.

It didn't happen and any pumping done by the gold "community" since last summer has really been just wishful thinking because the sector has been in "bounce only" mode (of interest to traders), as I've parroted to subscribers over and over again. In fact, we've noted the failure to join gold and break to new highs in both the miners and silver as a negative divergence for the entire sector. Gold of course, was busy getting caught up with the Gassing, Tomahawk and MOAB war/terror trade, a canard that, along with the pestilence fear trade, never ends well.

But it may be okay yet. There will be some kind of buying opportunity upcoming for a trade at least. But don't let gold perma-obsessives hoodwink you into thinking that the fundamentals are in line, because they are not. They are in line in gold's ratios to some commodities (a bullish gold/oil ratio and a constructive gold/base metals ratio) but bond yield relationships and stock market blow off dynamics remain out ahead.

One thing I have written repeatedly is that with this sector, you have got to hate the perma pom poms when their plumage is at its most colorful and they are on a full frontal tout. Well, maybe hate is strong, but they at least need to be aggressively ignored.

Never missing an opportunity to post my favorite graphic, here we see the Macrocosm with its gold/commodities aspect working well, it's "Community throws in the towel" aspect no doubt on the way and the China/India "Love Trade" right where it belongs (as a fundamental consideration), in a promoter's imagination.

The biggies here are the stock market and the economy and both, as of now, are strong and/or stable. The next biggest (and their planets should be larger, but work with me here… ) are yield dynamics and public confidence. Each remains non-supportive for the gold sector as of this moment.

We have downside targets (as HUI starts to get oversold into the zone) on the counter-cyclical gold sector and longer-term charts to color some bigger and potentially more bullish perspective. But the important thing longer-term is going to be bond yield relationships and the risk 'on' trade's blow off status, from which the economy and confidence may take their cues. Unless you're some sort of whiz bang trader (unlike me), you need to have patience with this process as it plays out over the coming weeks or months.

Meanwhile, April Payrolls are on deck and it could get markets (and bond yields) jumping around. Any ups and downs in the gold sector however, will only be noise until we get a major washout and more of the sector's actual fundamentals start to show signs of turning. But with a washout of some kind in progress, things are getting interesting at least.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: No positions were mentioned.

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