Monday, September 11, 2006

Catharsis?

When I said in Failure to launch that there maybe more downside to comein the HUI, the maximum downside I had in mind was about 320-325 or right about where the 200 dma were. In no way did I expect the ferocity of today’s move. For what ever its worth, today’s low was right at the 38% retracement of the entire move from 165 to 401, in addition to ending on the upper rail of the large symmetric triangle I’ve been drawing.

I doubt these technical coincidences are any solace to the gold bull dispirited by the last couple of days. After all, most momentum indicators are pointing south at this moment. However, I’m not a technical trader at heart. Like I said in the previous post, the entire commodity space is taken over by the “fast money” crowd. In order to minimize competition, I have to operate in a different sector; or if I choose to remain in the same sector, on a different time scale. Right now it means increasing my holding period and adding on dips. Consequently, I picked up some AEM and SSRI today. I still have some dry power left, and I’m fully prepared to step in again at HUI below 280 or 260 those opportunities present themselves.

Volume in most PM stocks was 2-3x normal today, which may be considered borderline capitulatory. One of the indicators I monitor was put/call ratio on the XAU. It ticked up but nowhere near the extreme levels that immediately preceded recent sharp rises. On the other hand, dollar weighted put/call ratio was high, especially in the near months. All in all, my purchase today was not one that I’ll unequivocally recommend except as a part of long term accumulation.

Other commodities took a big hit today as well. I’ve been wary of base metals and energy as mentioned before. My current limited holdings in energy stocks have fairly low cost basis. I intend to keep them as I’m still long-term bullish.

I was going to insert my usual disclaimer here, but let’s be honest, I’m clueless as how things will unfold in the near to intermediate term. And if you share my long term outlook of PM and other commodities, I was preaching to the choir anyway.