Thanks to Monty for this scoop.
Jim Puplava over at FinancialSense revealed on Newshour (his weekly broadcast) that he is short gold stocks. He may only be short the large-caps. Some of those charts do look bearish in the short-term. Puplava expects more deflation prior to inflation/hyperinflation.
Oddly enough, before I read Monty’s post, this weekend I listened to part of Puplava’s discussion with Quint Tatro. I think Quint is a pretty good technician and analyst but he did say that the HUI had a huge reverse head and shoulders pattern. According to one of the bible’s of technical analysis, the H&SH pattern is usually only relevant at major tops and bottoms. There has to be a long trend that precedes the actual formation of the reversal pattern. John Murphy notes that H&SH patterns can be continuation patterns. One example of that was the huge consolidation in Gold from 2008-2009.
Now, the reality is that there just isn’t a H&SH pattern on the HUI, nor in Silver. It would be a continuation pattern (like Murphy would say) but a market doesn’t crash and then continue up for an upside breakout. Gold formed a real H&SH continuation pattern because it was able to hold above the last major low (summer 2007 low). It didn’t crash through major support the way Silver, the gold stocks and everything else did.
Puplava and Tatro were sounding the alarm and it is true that one can make a great case for a 10-15% fall in the HUI. However, this is highly normal for the super volatile gold-stock sector and its highly normal when you consider how weak the sector is during the summer. It should be noted that Puplava was one of the early bulls (2000) but did ride commodities down in 2008. I don’t think hes calling for a major top here, more so a significant pullback.
We sounded the bearish alarm Wednesday evening when the HUI closed near 460. In last night’s update we talked about how this correction is forming a perfect C wave in a textbook A-B-C correction. With sentiment already very bearish, I will be interested to see what kind of readings we get as the gold stocks reach stronger support. Surely, if the HUI falls towards 400 sentiment will get much worse. We’ll see CNBC and all these “traders” talk about how the gold stocks are broken. I remember Joe Terranova of Fast Money saying Gold had broken down. The next day was the bottom in February and of course Gold rallied $200/oz in the next few months. He also got out of Gold in October, prior to a near $200 run.
Point being, this sector is a different animal and mainstream folks just don’t get it. We didn’t get it for a while. If you want to get our premium insights, stock recommendations, array of sentiment indicators/analysis, then consider a free, no risk, 14-day trial to our premium service.
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