Friday, June 23, 2006

Bifurcation?

Gold stocks were chipper out of the gate this morning, even as gold was down by about 8 bucks in the early going. I finally picked up some Yamana gold (AUY @ $9.38) and Northgate Minerals (NXG @ $3.46) as the break out from the down trendline appeared to hold. Both stocks exhibit similar formations as the HUI shown below. Looking ahead, a key level could be the 335 area corresponding to 50% retracement of the A leg and the 50 dma. I still think a triangular ABC correction is likely which means the 335 level must be overcome. Otherwise, a retest of the 255 area is in the cards. I only committed about 5% of my AM accounts to the two miners -- a gingerly move in comparison to my more forceful stance earlier this year. The plan is to lighten half of them at the top of this leg to reduce the effective cost basis. My only "concern" is that the June 13 bottom came only one month after the top which if holds, is the quickest correction yet for this gold bull from 2001.

Although the S&P had a similar setup to the HUI it has not managed to stage the same break out. Not only that, it seem to be tracing out a triangle that tends to resolve in the same direction as the orginal trend (look at the last 10-12 days). Of course the commodity stocks that started this down turn may yet lead the general market out of the funk. Nonetheless, this bifurcation is most welcome given the cross hedging I'm employing.

This is not investment advice, please do your own due dilligence. Good luck and be safe!