Junior Mining Stock Report Update
A technical review and forecast of the junior mining sector
Aug. 22, 2007
Junior Mining Update
Big improvements in market psychology (plus, a look at some Aussie juniors)
The Amex Gold Bugs Index (HUI) closed Tuesday's trading session at 314.10 to gain 0.46%. The XAU gold/silver index closed at just under the 133 level for a gain of 0.70% for the day.
The XAU index closed well off its low from last week of 120 but is coming off a much deeper correction low than the broad market S&P 500. This lagging behavior isn't really surprising since gold stocks nearly always bear the brunt of a broad market sell-off. Investors are always quick to dump the gold stocks when they're desperate for cash and this is why PM stocks usually take the hardest hits at a correction low.
But what started out as a rough-and-tumble week for equities in general and for the precious metals and PM shares in particular ended up being promising in terms of a market bottom now in formation. The selling of the past week was clearly overdone and now there is evidence that the "smart money" is returning to buy heavily the beaten down PM bargains, including some in the junior mining stock arena. We'll have a look at the most oversold silvers later in this report.
Last week's panic selling took a lot of steam out of the gold/silver stocks but the indicators show the selling was mostly panic-related in nature. As such, we can expect the market to eventually give back what it has taken from so many fundamentally sound gold and silver equities, although this could take several weeks to accomplish. We're not far from when the seasonal trend turns bullish for the PM sector and this should provide an added push upward to the beaten down mining stocks. In view of this, and because fundamentals remain sound for the sector, any further market weakness in the form of pullbacks to test the recent correction lows would be viewed as buying opportunities.
The white metal was particularly hit hard hit last week as hedge funds were selling heavily on Thursday to meet redemptions. Yet I view this from a contrarian angle and see the decline was overdone. Hedge fund managers can be just as inept as the average, inexperienced small investor and this appears to be one of those times. The Ishares Silver Trust ETF (SLV) which essentially tracks the silver price closed at $115 on Tuesday, a low for the year-to-date. Yes this is painful to consider but the SLV, as well as physical silver, is coming off a major oversold reading in the price oscillators. Take a look at the 5-day and 20-day price oscillators for the SLV shown below. Both lines have fallen below the green line which has always indicated a speculative buying opportunity in the past. Both the 5-day and 20-day oscillators are also at their greatest oversold readings of the year. The last time we saw readings like these was in late June/early July and it was followed eventually by a rally that took SLV from approximately $122 to almost $135, i.e., back up to the 200-day moving average.
Once again we see that SLV has become drastically under-extended from its 200-day moving average which currently intersects the $131 level overhead. The under-extension from the key 200-day MA as well as the oversold readings in the oscillators should result in a relief rally beginning soon and taking SLV back above the $125 level and closer to the 200-day MA.
The best news the market is offering us right now comes from the 20-day price oscillators. The XAU 20-day price oscillator has hit its lowest reading in several years and I can't remember when I've seen it lower than it is now. This shows that the market was stretched like the proverbial rubber band at the breaking point and we now have a nice oversold rally underway. After this latest rally fizzles we might get a re-test, or a partial re-test, of the recent lows but these lows are expected to hold and an interim bottoming process should be underway.
For now the area around 125 becomes the pivotal support for the XAU index, a benchmark that stretches back to 2006 and has held up after several testing periods in the 20 months since then. Another key feature of the area around the 125 level is that this is where the 600-day moving average intersects in the daily chart. As you can see, the 600-day MA has acted as a kind of "support of last resort" ever since the precious metals bull market got underway back in 2002. The 600-day MA was temporarily violated on an intraday basis Thursday but this quickly reversed. It's not important that the price stays above the 600-day MA at all times as there can be temporary violations (as occurred briefly in 2005). A break of the 600-day MA will often scare the technical traders into selling out which may have happened during Thursday's trading session. This would be a bullish consideration assuming it happened (and there is some evidence to support it).
The CBOE Gold Index put/call open interest ratio has hit the lowest level I've seen in recent memory. On Tuesday the ratio was 0.04 which basically means the smart money options traders have been buying calls with both hands. Open interest on put options was almost nil on Tuesday. Take a look at the chart below which shows the huge drop in the put/call ratio. A decline below the green zone of the chart is considered to be extremely bullish from an intermediate-term outlook.
As we observed in Tuesday's report, it sometimes take the gold stock market to respond favorably to a drop in the put/call ratio but the market has always reversed higher, usually within a few weeks of such a strong reading. And the rally off the reversal is always worthwhile from a swing trading standpoint. Accumulation campaigns sometimes take time but patience always pays off in these cases.
Another thing worth considering is that the important 15-day moving average of the put/call open interest ratio was still at a fairly high level and needed to come down before the market was ripe for a sustained rally. The 15-day MA for the put/call ratio is coming down sharply and may need to come down some more before the next take-off time in the XAU and HUI. This wouldn't be surprising since a re-test or partial re-test of the correction lows is common following such a major decline as we saw recently. The important thing to remember is that in spite of how much volatility and choppiness the market may put us through in the next couple of weeks, the put/call reading is sending a very bullish signal and tells us to take heart: better times are coming for the gold stocks!
Turning our attention to the major PM stocks, we've looked at some promising parabolic patterns in the daily charts the past few days as more and more of them seem to keep cropping up. Well here's one in the daily chart for Hecla Mining (HL, $7.72) which looks promising. Hecla bounced off its rising 400-day moving average at its correction low two weeks ago and looks to establish support above the $6.50-$6.75 area where the 400-day MA intersects with the lower rim of the parabolic bowl pattern you see here. The short interest in HL at 8% is pretty high and should help the stock maintain support above $6.50 as it tries to round out the bowl pattern and approach the outer rim of the bowl. This is where the up-curve begins and the next rally in HL should begin, albeit it could be still a couple of weeks away so patience is still required. Hecla's earnings outlook is still positive and the forward earnings-per-share line is bullish longer-term, i.e., Hecla is still an investment quality issue...
--Clif Droke
clif@clifdroke.com
einige der besten silvercompanies haben bei den heftigen Korrekturen die diesmal stattfanden in vergangenheit ca.3-4 Wochen gebraucht um die Basis zu bilden bis die Konsolidierung zu ende war, jetzt zuzukaufen halte ich daher für verfrüht, ärgere mich natürlich dass ich am Sommerschlussverkauf Teil 1 nur 2 Silberminen ergatterte 
Teil 2 kommt dann vielleicht am 11.9.07 
cash-cash-cash, sell your house now, ich fang mal mitm Klavier an, House muss dann bei Silver <USD 10 dran glauben 
shocked Man of truth:
http://www.youtube.com/watch?v=sRngAdsJTu4
understanding how fed deprives Americans:
http://www.youtube.com/watch?v=OIjFe36_HQM
burning down the house ![:]](https://goldseiten-forum.com/wcf/images/smilies/pleased.gif "Freude")
http://www.youtube.com/watch?v…AcVg&mode=related&search=
)
1 week ago
Ihr loser. 