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Today's WrapUp by Martin Goldberg 10.19.2006  Mon   Tue   Wed   Thu   Fri   Archive


COMPARATIVE ANALYSIS OF GOLD BUGS INDEX STOCKS

The Gold Bugs Index (HUI) is now at a level where many of the stocks can be purchased with a logical and not-too-painful stop loss. It is therefore appropriate to technically examine the charts of the stocks which make up this index. The results of this analysis, presented in tonight’s article, reveal some key technical leaders and some conspicuous laggards. I wish to focus on the weekly charts covering a two year timeframe. This timeframe provides the performance of the stocks from the May ’05 to May ’06 impulsive bull run in gold stocks, and the corrective wave from May of ’06 to the present.

Below is the chart of the index showing both the impulsive and the corrective waves. Note the technical importance of the 270 level of the HUI. A close below that level would spell trouble for the bull market in the Gold Bugs index.

The chart of Agnico Eagle Mines Ltd. (AEM) is below. This chart is one of the strongest in the HUI, in that the stock has outperformed the HUI by 67.5% in the last 2 years. Although this stock corrected with the entire sector in May, the stock has made higher lows during the corrective phase. The stock now sits close to both its rising 40 week and just below its 10 week moving average. A break into new relative performance high ground, along with a rise above the 10-week moving average would do a lot to confirm the bullish long term prognosis of AEM stock.

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By contrast the chart of Coeur D Alene Mines Corp. (CDE) is one which depicts a 2 year index laggard. As the stock advanced from the May of ’05 bottom, the relative price lagged the HUI. A surge in relative price which began in January of this year was quickly turned back, and the stock now sits below both its 40 and falling 10 week moving averages.

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Eldorado Gold Corp. has had its ups and downs over the last 2 years, and on balance, it has been a “market perform” when comparing it to the HUI index. The key feature of its technical chart is the key technical support area at 4.

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Freeport McMoran Copper & Gold (FCX) has been a market leader during most of the 2 year period, outperforming the HUI by 37%. During the corrective market phase that began in May the stock corrected and then put out a bullish hammer candlestick pattern (shown to the right of the blue arrow) in June. Since that time the stock has made higher lows and higher highs, and as of this writing the stock has reclaimed both its 40 and rising 10 week moving averages, while decisively outperforming the HUI. FCX is a market leader.

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By contrast Gold Fields has been a laggard as the stock is now well below its falling 10 and 40 week moving averages, and is less than one point from its June low. Over the 2 year time frame, the stock has lagged the HUI by about 9%.

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Goldcorp, Inc. (GG) has been a HUI market leader; however the stock was punished when they announced the Glamis Gold acquisition which punched it below its key intermediate term moving averages. The punishment turned out to be at least of the intermediate term variety, and now the stock needs time to heal. Whereas most HUI stocks are above their June lows, Gold Corp has not recovered from its acquisition news.

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By contrast, the acquire-e, Glamis Gold Ltd., was applauded by news of the deal. And overall the stock has withstood the correction in gold stocks, as it has only lost about 2.5 points since the May of ’06 top. Glamis has outperformed the HUI by 47 percent over the last 2 years.

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The 2 year chart of Randgold Resources practically speaks for its bullish self. Note the long term bullish uptrend line.

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But I cannot say similar bullish things about the chart of Golden Star Resources (GSS). It appears that any investment in this company requires more fundamental information since the chart yields nothing to be optimistic about.

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Even though it lagged the HUI by 35% over the last 2 years, there may be a more compelling case to be made for Hecla Mining (HL) as the chart shows a broken recent downtrend as well as an upward sloping 40 week moving average, with the current price above the 40 week and close to the 10 week moving average. The relative performance of HL is approaching new high ground, which if broken decisively, would be another bullish indicator for the stock.

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Harmony Gold (HMY) would probably require some additional time to break the down trendline which began about 4 months before the HUI topped in May.

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The chart of IAMGold Corp. (IAG) follows… I am not impressed.

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More impressive is Kinross Gold (KGC), where higher highs and higher lows have been consistent since May of ‘05. The stock has outperformed the HUI by almost 27 percent, with all of the outperformance coming since June of this year.

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By contrast, Meridian Gold (MDG) has done very little for its shareholders lately in a market where it’s all about “what have you done for me lately”. Over the last 2years, Meridian Gold’s performance has been approximately “on the Meridian” as it has only outperformed the index by 2.44%, and has lagged the index by about 29% since May.

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Newmont Mining (NEM) may be the only stock among precious metals stocks that is arguably a household name. Yet thus far, one can make an argument that it is this stock that is giving the entire sector a bad name! A purchase of a gold mining ETF such as GDX, would have outperformed Newmont Mining by 28% over the last 2 years, with less risk. The under-performance of NEM has been consistent since May of ’05; and thus far, there is nothing on the chart that suggests that this will change any time soon.

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Today’s Market

Another up day in US equities as the Dow Industrials closed over 12,000 for the first time ever. Besides that, there was very little movement in the market on relatively high volume. Google reported after today’s close and the after hours crowd is stepping all over each other to buy the shares in the aftermarket. We saw similar action in Apple stock last night, with the stock trading up over 5% in the aftermarket, although the close today was less than the opening price. 

All of the stocks of the HUI were up decisively today, with the HUI up 3.7%. So the statement I made in last night’s draft, “The Gold Bugs Index (HUI) is now at a level where many of the stocks can be purchased with a logical and not-too-painful stop loss”, is somewhat less true now as it was then. 

Most relevant from a long term perspective is the Elliott Wave analysis of the HUI; once again re-ran again because it is so important. Since May of this year, the HUI has been in a corrective mode and when this correction is over it will be in the third wave of a third wave, and this promises to be rewarding for those who are long of strong gold stocks. It is bullish that during this correction, the weekly RSI momentum indicator refused to become extremely oversold (so far). (A decisive close below the dashed renders this analysis no longer relevant.)

 

With most eyes focused on Dow 12,000, it is notable that we may have had a resumption of the commodities bull market. Fifty two (52) is a key support level of the oil ETF (USO).

Have a great evening!

Martin Goldberg

Copyright © 2006 All rights reserved.

Martin F. Goldberg, MS, P.E.
Market Analyst

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