Saturday, September 3, 2011

HUI breakout or fake out ?

Are the Gold and Silver miners breaking out or is it a 'fake out' ?  Below is a daily chart of the HUI - AMEX Gold Bugs Index.

The HUI Index broke above the last high of 609 that was produced on April 8th, 2011.  It went to a high of 622 and closed at 618 and change. Gold was up $47 and Silver was up $1.54 for the day.  It is speculated that the mining shares have been held down by hedge fund shorting and this may be coming to an end unless they want to watch their 'profits' dwindle away leading to potential losses.

As mentioned before, the solid junior, mid tier and senior miners all should have exceptional earning from the rise in both Gold and Silver.  This will not go under the radar of the money managers and hedge funds.  Look for significant price appreciation in select miners in the 4th quarter.  There will be plenty of trading opportunities for swing and momentum traders!

For those that wish to limit risk, look into the GDX and GDXJ as they are essentially mining share mutual funds that are liquid and easily tradeable. (The GDXJ are junior miners)  SIL is the Global X Silver Miners Index if you are looking to spread out your risk while owning Silver mining shares.  Visit the Van Eck website for details and holding for the GDX and GDXJ and the GlobalX website for detailed holding for the SIL.  Read the prospectus and contact your investment adviser before investing in any ETF or equity.

The decline in the US Indexes has been 'orderly' and there has not been a major crash since the end of QE2. One item to note is that the S&P500 was down 30 points and change on Friday while the mining sector was up. 
That tells us that investors are willing to take money out of other sectors and invest in the mining shares. That may be one of the few sectors that are actually going up while the market declines. The flow into mining equities may hold true until there is a major crash that will for those on margin to liquidate their holdings indiscriminately.  (Like in 2008)
(Side note on the S&P500 - The short term, mid and long term moving averages are crossing over to the downside that is setting up a bearish pattern, marked with white squares. Those with a 401k may want to take a look at what they are invested in)
With the appreciation in mining shares, they should catch the attention of computer algorithms which may place more buy orders of the shares.  This should push the sector even higher and the shorts will need to cover pushing them even higher.  For traders, look for a top in the RSI for both equities and ETF's for a signal to exit the trade or to tighten the stop. 

Disclaimer:  I currently own shares of SIL.

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