Some Bullish Elements On The Gold Mining HUI Chart

Check out this monthly chart of the HUI. Back in 2002 / 2003 price ran into resistance at the 150 level and took more than 12 months to break through. Above 150 conditions were so bullish that when price pulled back to test the breakout area, the pullback could only reach 165 before reversing higher. After testing the breakout zone twice HUI went on to triple in price (300% gain).

The financial crisis in 2008 knocked the wind out of precious metals stocks and HUI returned to the 150 level once again. After testing this long-term support level, price zoomed higher, this time increasing 400% in less than three years.

Today we find the HUI back at the 150 level after more than three years of painful declines. There are some really bullish aspects to this chart.

First is the fact that price has returned to the 150 support level and started waffling sideways instead of dropping further. In other words, the long-term support level is still intact and, as we have seen, this level has been the jumping-off point for rallies of 300% and 400%. Even a modest 38.2% Fibonacci retracement of the 2011 – 2015 decline would take us up to 335 and the upper median line of the Andrews pitchfork – that’s a clean double from current levels.

Second is the MACD indicator bottoming in late-2013 and then issuing a buy signal in June 2014. Look at the last MACD buy signal in 2009. That signal lasted for 20+ months. We do have to acknowledge however that in 2009 MACD was in bull mode (both lines above zero) while the indicator is currently in bear mode. This puts a slight damper on my enthusiasm but MACD is rising bullishly and the buy signal is hard to ignore.

HUI – Gold Bugs Index – monthly

HUI_Monthly_1997_April_2015

 

Let’s turn now to the weekly chart.

Andrews pitchforks help us identify the current trend and the red modified-Schiff fork in the chart below makes it obvious that the trend is currently down. Even so, there are several bullish signs in this chart that we want to consider.

According to Edwards and Magee in Technical Analysis of Stock Trends, “Divergence is one of the most common and effective patterns in technical analysis. Patterns where the MACD shows Divergence from what the prices are doing can be an important signal.” The signal they are referring to is the end of the current trend and a reversal in direction. The bright red and green lines in the weekly chart are highlighting the ongoing divergence. This divergence has been in effect for over a year and, as E & M tell us, “the pattern needs time to develop and should not be anticipated.” It would be reasonable to assume that the longer the pattern takes to develop the more significant it is – i.e., this divergence is marking the end of a three+ year downtrend and reversing direction will take some time.

HUI – Gold Bugs Index – weekly

HUI_Weekly_2013_April_2015

The next thing we want to notice in the chart is that last week price poked above the 270 period regression line. Who cares, right? Well, consider the chart below and trace the 270 period regression line back in time.

HUI – Gold Bugs Index – weekly

HUI_Weekly_2009_April_2015

This chart gives us the big picture and provides context for the chart we just looked at. Notice how the 270 period regression line marked support in 2011 as price was peaking and then identified resistance after the HUI started dropping. Now here we are three+ years after that peak and price is finally rising above the 270 period regression line. I consider that to be a significant development but, as I admitted earlier, I am afflicted with goldbugitis.

The rise above the 270 period regression line is also taking price through resistance at the median line of the red modified-Schiff pitchfork. Assuming that this push higher marks the start of a new uptrend, I have drawn the blue Andrews fork. This fork’s median line gives us a potential target (red ellipse) which is coincident with the upper median line of the red fork and the prior high.

By Bryan from Pitchfork Playground

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