Thursday, March 29, 2012

Buy the Gold Stocks

It has been a brutal six months for owners of the gold miners with the sector losing about 26 per cent, about double the 12 per cent loss for bullion over the same time window.

From a technical prospective I believe the worst is over for the gold miners

Our chart is the weekly closes of the Market Vectors Junior Gold Miners (NASDAQ-GDXJ) plotted above the weekly closes of the Market Vectors Gold Miners ETF (GDX)
The GDXJ is a basket of junior gold miners such as B2Gold Corp. (BTO), and the GDX is a basket of large cap gold miners such as Barrick Gold Corporation (ABX).

Because both plots represent a basket of diverse gold stocks one could assume they would be somewhat identical. What a technical analyst is looking for here is some form of price divergence between the larger gold miners and the smaller gold miners. The divergence will occur when one line makes a new high and the second line turns lower just before it posts a new high. This is called negative divergence or a bearish setup which occurred between the small cap GDXJ and the large cap GDX in late 2010 and early 2011. Note the failure of the upper plot to follow the lower plot to a new high.

It was this bearish set up that signalled the pending nasty twelve month bear in the gold miners.

Now there is positive divergence or a bullish setup condition which is now occurring between the small cap GDXJ and the large cap GDX. Note the failure of the upper plot to follow the lower plot to a new low. We now have bullish set up that could signal a pending bull market in the gold miners. Good news for the gold bugs and those nervous portfolio managers.

Wednesday, March 21, 2012

Apple’s Secular Advance

Much has been said about the recent advance in the shares of Apple Inc. with the big focus on the February to March non-stop run from $400 to $600. Now with Apple paying a dividend there are views on a transition of Apple from a growth company into a value cash cow that will spin of cash to the shareholders, A few days ago on business TV a technical analyst referred to the recent advance to be “parabolic” and warned of a probable nasty correction – see chart below.

The technical analyst made a common error – typical in the industry in that he is using the incorrect scale. The rule is if the price data in the window doubles – use a semi log scale. Linear scales are OK for TV and newspapers but not OK for proper trend analysis.Our second Apple chart below clearly displays Apple in a defined secular advance within the center of a long term growth channel. The so-called parabolic run has vanished. 

Tuesday, March 13, 2012

The Second Technology Boom Gets Underway

About 4-weeks ago I explained Cisco’s Secular Bear that began in early 2000 and is now into year 12 which is the completion of three shorter bull and bear cycles which is a business cycle of about 40 months discovered in the 1920s by Joseph Kitchin. A secular bull will contain about seven of the shorter bull and bear Kitchin cycles and a secular bear will contain about three of the shorter bull and bear Kitchin cycles.

A pending 4th Kitchin cycle is just getting underway and should drive CSCO up and out of the secular bear – in effect introducing a new secular bull or an “Echo” Global Tech Boom. We can now assume what is good for Cisco is good for the broader technology sector and a look at the NASDAQ Comp seems to confirm my analysis with the index just to-day breaking to an eleven year high. We need to own the QQQ’s or a basket of names like CISCO, Intel, Microsoft, eBay and Apple. Canadian dollar accounts could enjoy the TSX listed BMO ZQQ.