Tuesday, June 21, 2011

Stealth Bullish Indicator - Who is Left to Sell?

Courtesy excerpt of the Full Got Gold Report. 

HOUSTON – One of the points that we focused on in Sunday’s full Got Gold Report was that the Canadian Venture Exchange Index or CDNX is currently trading at a level it first reached in Q1 of 2004, back when gold was trading either side of $400 and silver near $6. That kind of argues with conventional wisdom that the miners “leverage” the price gains in gold and silver – at least so far, and following the super-panic, near-death experience we all endured three years ago.   

Over the next few days we plan to publish several short excerpts of that important report in this free public forum, including our detailed look at the CDNX technical picture.  Stay tuned for those excerpts, meanwhile, is it our imagination, or has the collective world stopped holding its breath over the past 72 hours? 

How about that?  Apparently the markets are attempting to discount the headlines.  Not today’s headlines, but the news we will be reading about the economy a quarter or two or three hence.  Our view is that the 2011 Vulture Bargain Hunting Season may begin to ripen just ahead … or maybe now.  We’ll see.  

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Just below is an excerpt of this past weekend’s full 35-page Got Gold Report, which was delivered to Vultures (Got Gold Report Subscribers) Sunday afternoon and posted to the password protected subscriber pages then. 

Excerpt:  Got Gold Report – “Target Rich Environment Nears” from June 19. 

Moving on, the indicators we watch every day and study every weekend are like semaphore systems.  They send up “flags” from time to time.  Below are a few of the ones we thought worth sharing this week. …  

One of the more valuable indicators that we track, but rarely share is the Gold Miners Bullish Percent Index or BPGDM, which measures the percentage of miners in the NYSE Arca (AMEX) Gold Miners Index (GDM) that are in point and figure chart uptrends (most all will be above key moving averages).  We think of it as a forward-looking contrary barometer.   As this index moves much higher we reckon that there are fewer and fewer people left to buy and thus the market is becoming overbought, and vice versa.  Obviously we are in the “vice versa” part of the description currently. 

20110621BPGDM
BPGDM, 2-year, weekly, updated thru June 20. If any of the images are too small or get cut off, click on the top of them for a larger version or clock on the title of this post for the full page.  

This index is currently “saying” that a majority, if not most of the people who might have been inclined to sell probably already have sold, but there is still room at the bottom for more selling, especially in a panic. The lower this indicator goes the more “value” has been wrung from the miners and thus the more upside there is for the future in our peculiar way of looking at things.  

Continued…  

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The BPGDM is one of those indicators that says “buy” when the news headlines and most of the punditry brigade have chewed their fingernails down to the quick, but it is a poor timing tool for very short term traders so it isn’t very popular.  We use it to help form our own bias in the market we have chosen to game.  Vultures will note how high this index reached in November, when we first started raising ammunition for the Bargain War Chest.  When almost all (95%) of the dozens of stocks in the index were in uptrends the index was pretty much screaming at us to ease out of our Big Winners to wait for another opportunity.

Experiment:  Just place a business card or a piece of paper over everything to the right of November to see the signal we saw then.  This index confirmed to us in November that a great deal of available buying “horsepower” of the collective market had already been spent.  Gold and the miners had a great 2010, so there was a high probability we would see a repeat of the heavy profit taking we saw in January of 2010, and so this indicator helped us to change our bias from “trending-bullish” to “raise ammo” (so to speak) – and we did just that, building up our Bargain War Chest that we are in the midst of redeploying again now.  

Recall also the flurry of financings and deals announced during the fall of 2010 right after Anglo’s bond sale to pay for their hedge book closure (and here let’s mention that we noticed a lot of big names surfacing in the financings and overnight secondary’s – always a sign the Masters think it is a good time to raise money and do deals which usually means near a top).  There were lots of indications it was time to raise ammunition, not just one. 

Contrast that to today, where we see a pronounced uptick in the number of insider buys for the small resource companies and a rash of companies handing out options to themselves, which indicates that company management thinks now is a good time to hand themselves options price-wise. 

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End of excerpt.  Tomorrow:   Have the Little Guys Quit Underperforming the Big Boys?  (A focus on the CDNX in particular and small resource companies in general. Join us then, if you please.) 


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The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter


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