Materials & gold shine brightly

September 7, 20124 Comments

As mentioned in a prior post, I plan on writing 2 posts per week effective immediately. The first post of the week (usually Monday) will be a broad market commentary—as was this Mondays: The second post, which will usually be on Thursday or Friday, will focus on a sector or stock with an interesting looking chart—bullish, neutral  or bearish.

Due to work-related commitments, I may have to miss the odd second post. But I’ll try to be consistent in delivering this agenda.

This week’s charts of interest are the materials sector and gold equities. Take a look at both of the charts. Materials have been beaten down this year, but they may be ready for a pop. Materials, as represented by the iShares Materials ETF (XMA) broke the neckline at around $18, from a ascending triangle pattern. The ETF is toying with the 200 day MA. As with all “phase 1” base breakouts (read my book Sideways for full explanation of the 4 market phases), please note that you need 3 days above the neckline before its genuine. A failure to hold above $18 in this case means a false breakout.

 The sector includes a mixed menu of gold, silver, fertilizer, and industrial metals stocks. Supporting the upside potential will be the seasonal influences for the sector, which typically start to become attractive in late October. I’ve mentioned before that you need to get a jump on some of the seasonal cycles lately, as they do appear to be moving forward in time a bit. My recent call for the Canadian banks to move about a month before their typical seasonal buy period (early October) might prove that point, as they have been breaking out.

Gold stocks have lagged the metal, but they may be ready to play catch-up. Increasing costs of production does put a bit of a damper on the group, but some fundamental analysts feel they are undervalued even taking these costs into consideration. The charts suggest a similar pattern to XMA is forming (no surprise, given the gold influence in XMA), but the neckline has not been broken yet. Wait for a breakout through and 3-day confirmation to hold the breakout. I’ve used the iShares XGD Global Gold ETF to illustrate this formation. $21.25 is the neckline, which is just above the 200 day MA. Wait for the breakout and 3-day confirmation before considering this sector.


  • Check the charts of the US traded GDX and GDXJ which I think have broken their neckline and signalled me to get long the XGF and ZJG in my canadian accounts. Also very bullish charts on AEM, CSI, OSK which also have improving fundamentals. However playing individual gold stocks is very tricky and it is best for most to stay with the ETFs.

  • I think both these may be ready for pull back to the 20 day MA. If I see a big gap between price and the 20 day MA and particularly a long candlestick far above the 20 it many times marks a temporary top in the price. Both of these ETfs may go higher but I would expect a small pullback to the 20 day MA first


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