A gold stock relative buy signal:

In an earlier post I looked at Fibonacci ratio studies as applied to gold and the gold miners – and - what you can expect when a market begins a corrective phase. The classic Fibonacci retracement percent number (%R) is 61.8% but 50% and 100% (not Fibonacci #’s) are common. A long term chart displayed gold and the gold miners rebound from the 2008 financial crisis lows to the 2011 price peaks and the subsequent correction expressed as per cent retracements.

Now I present a relative perform study - daily with the gold miners above the gold bullion ETF setting out some relative perform buy and sell signals as displayed in the lower short term spread. The calculation is the upper plot / lower plot with a 20 period smoothing. One caveat with relative studies – a relative out perform sector can still go down – but at a slower rate than the related sector – its all relative.

Energy – the long term picture:

Canadian investors – for some reason – are attracted to energy stocks – much like moths to a fire. The reality is the broader sector as measured by the S&P/TSX Capped Energy Index has delivered a price return of zero since 2005.

Many technical analysts are applying various studies to the crude problem but when in doubt I always first go to a very long term chart and seek out a primary trend line.

Our 1996 – 2014 monthly crude plot displays the 5-wave 1998 – 2008 advance that ended with the great July 2008 price spike. The subsequent 6-month collapse was followed by a rebound bull that peaked in April 2011. From there crude traced out a long 3-year symmetrical triangle that ended with crude breaking down to the current $75 level – which happens to be right on a very long term primary trend line. A failure here would have crude testing the lower support levels of $72, $51 and finally $38. I think the bottom is in at $72 support. This would be confirmed by a peak in the SPDR Consumer Discretionary ETF (XLY) – which is a beneficiary of lower crude prices.

Alert! Just before posting I was told that Dennis Gartman, the author of The Gartman Letter, during a BNN interview – predicted crude to fall to $50. That should be good news for the energy bulls because of Gartman’s track record as displayed by the Horizons AlphaPro Gartman ETF (HAG) which was “to provide investors with the opportunity for capital appreciation through exposure to the investment strategies of The Gartman Letter” The fund was shut down (shuttered) in March 2013.

BNN and the Health Sciences Selections:

Last night on BNN’s Market Call I stated that the current bull market in most of the major stock indices is now well into the fifth year – or about 2035 days. The average length of modern bulls (5 since 1974) is about 2460 days (thanks Ned Davis) – so the current bull is quite old in terms of time. So - we are likely in the early stages of a topping phase which could take several months to complete. Some the early technical signals are the gradual thinning of market breadth as seen in the cumulative NYSE advance / decline line and the cumulative NYSE new 52-week Hi /Lo line

All tops are different and I suspect this one will see money – over the next several months - chase the smaller speculative sectors which as jr. metal miners (uranium & copper) and the smaller biotech / health sciences stocks. I promised to post a list of TSX listed bio & health stocks with a caveat – they are risky – some will be big winners and some will be big losers – so buy a small basket – do your homework and better still get advice from an industry professional. Also BNN in no way support or recommend these names – the opinions are mine only. The last time I created a basket of bio & health stocks was August 2013  –  the big winner was Tekmira Pharmaceuticals Corp TKM  up 293.2% and the big loser was Acasti Pharma Inc. APO down -74.0%

PS – other names – not displayed - with strong money flow numbers are Cardiome (COM), CRH Medical (CRH) and Microbix (MBX)

Gold vs. the gold miners:

According to Elliottwave International Elliott waves often correct in terms of Fibonacci ratios. They explain in their new eBook How You Can Use Fibonacci to Improve Your Trading, which explains what you can expect when a market begins a corrective phase.  The classic Fibonacci retracement percent number (%R) is 61.8% but 50% and 100% (not Fibonacci #’s) are common.

Basically a retracement is a correction that follows a meaningful advance as illustrated in our chart – monthly data displaying gold and the gold miners’ rebound from the 2008 financial crisis lows to the 2011 price peaks and the subsequent correction expressed as per cent retracements. The bearish 2011 – 2014 stampede away from the gold miners has been extreme as measured by the collapse back to the October 2008 lows – back when we had $700 gold prices. The question here is that who is wrong – the gold miner bears (a bearish stampede) or the gold bulls who have not capitulated. Yesterday I observed many candlestick bullish reversals on the gold miners.

Next post: Crude vs. the energy producers.