Wednesday, March 26, 2014

PMC charts update

here I am just going to update some of the precious metals complex charts we've introduced over the past months.

so the PMC weighted index has indeed fallen back to the former neckline we highlighted. however, prior to the current retracement, it popped above that old shoulder resistance. so now I'm in the position of seeing a downside target met, but one that had been contingent on a resistance target that didn't hold. what to do? well, I already did it, before even updating this chart this evening: I bought more FSAGX -- a lot yesterday and another lot today. So now the account is 80 per cent invested in gold mining stocks.

here's an update on the PMC WI CROC*

the CROC had flirted above the neutral line for a bit there, but has since fallen back below the previous resistance. that's ok with me; it just that sentiment in the complex has backed off. I look for the upward trend line to hold.

the major area of concern should be the rapid deterioration of the PMC ratio index:

this has fallen all the way back to December levels. something like a 70 per cent retracement of the rally. that's alright, the recent fall has a capitulatory look to it. that kind of decline often transitions into a 'V' shaped rally. I'm sinking into subjective visual 'analysis' here, but I don't apologize.

so yeah, I've bought more gold stocks, might buy a little more, depending. the complex isn't behaving particularly badly in my mind -- it raced up quite fast and now stepping back. I'll get concerned if silver hits a new low and/or our ratio index does.

*Consolidated Rate of Change

Thursday, March 13, 2014

John Denver International Airport

as we are flying through Denver tomorrow, I joked to Lisa that they should name the airport "John Denver International Airport", after he passes away of course. Lisa's like, I think he's already dead, didn't he die in a plane crash?

Saturday, March 1, 2014

Precious Metals Complex charts

the metals complex had quite a thrust higher since we last looked. Here's a chart of the PMC Weighted Index:

(the weighted index is similar to the PMC Index I introduced last year, but instead of being equal parts GLD, GDX, SLV, it consists of three parts GLD, two parts GDX, two parts SLV, and one part GDXJ.)

it is interesting how we appear to have met resistance right at the level of the two shoulders during the previous bearish sequence. Perhaps the complex will find support near the former neckline? don't know, aside from my initial entry in early December I haven't done very well micro-managing this trade, so I better just go about my business. however, I will buy more FSAGX if this complex chart retraces to that old neckline.

here's an update on that PMC ratio chart I posted a few weeks ago:

not that I was paying attention at the time, but at the height of the recent rally you'll note the divergence on the ratio chart compared to the weighted index up top. I am not swing trading these markets, so minor tells like that don't concern me much, but for those who are trading more actively, little indications like that can prove quite valuable. (or they can screw everything up if you don't know what yer doing.)

and now for my favorite chart, a combination of the weighted index and the ratio index (it's just the geometric mean of the two series):

Saturday, February 8, 2014

Precious Metals Complex Ratio Index

allow me to introduce an additional indicator used to track the health of the precious metals complex: the PMC Ratio Index.

it's simple really, I just combined into a single series the three ratios that Everyone uses to analyze the metals:

SLV:GLD (the ratio of silver to gold)

GDX:GLD (the ratio of gold stocks to gold)

GDXJ:GDX (the ratio of junior golds to major gold stocks)

it is generally agreed that the stronger each of these ratios, the more favorable the outlook for the precious metals complex as a whole. but often each of these ratios, when viewed separately, will lead to conflicting outlooks. and that's fine for analysts who enjoy reconciling the divergences with nuanced interpretations. but I don't have time for so much confusion anymore. I'd prefer to look at a consolidated picture from the start and reserve the underlying components for the occasional indulgence.

but how does one combine three such ratios into a single series? just take an average of the three? yes... but.. a regular arithmetic average won't produce anything very useful. sure you could rebase each one to 1 or 100 at common point in the past and then average them out, but eventually your combined series will get so distorted that it becomes useless. no, the best and most truthful way of averaging non-commensurable series is by using the geometric mean (=GEOMEAN in excel)*.

so with that explanation of method out of the way here's a chart of the PMC Ratio Index going back a few months:

looking back, that handle that formed in December proved to be a positive indication, especially since it formed as the underlying ETFs were testing or hitting new lows. since then the index developed into a defined (albeit broad) uptrend.

In the next post we will compare this ratio index to the PMC ETF Index.

*incidentally, geomean is the only valid way to average a group of ratios. unfortunately this fact isn't widely known among market analysts and amateur statisticians, often leading to embarrassing (if comical) errors.

Tuesday, January 28, 2014

Precious Metals Complex -- Consolidated Rate of Change (351)

a retrace would be nice before we break the blue neckline. maybe we'll get that retrace then break the blue neckline and the downtrend line concurrently. that'd be way cool. beyond that, moving above the neutral line will indicate that this is all something more than a fool's errand.

Saturday, January 25, 2014

precious metals complex -- still in play

the precious metals complex has shown some signs of life since the updates I provided in early December. While I did initiate the buying program laid out for FSAGX (the Fidelity gold fund), so far I've only managed to allocate 60% of the portfolio into the fund. the remainder is still in cash. a couple purchases were made right about the lows but over-cautiousness and/or professional distractions prevented me from pulling the trigger enough times when the fund lingered below 18. a few more buys I made after mining stocks entered their rally this month. in any case, I'm happy with the cost basis of the position we have so far, but hesitant to add more in the absence of a consolidation.

furthermore, I haven't completely dismissed the possibility of gold itself making a final plunge to that long-standing target of 1145. perhaps the opportunity passed when the spot price held 1180 over the holidays, but it would be premature to assume that gold has fully escaped its downtrend.

such a pretty channel, no? we'll find out soon enough, but a single candle peeking above a trendline doesn't confirm a breakout.

silver, even though it showed so much courage last month amid gold's weakness, remains well within its downtrend channel.

but on the bright side, mining stocks have seen motivated buying, with the HUI more definitively breaching its corresponding channel.

while it's a positive development, we shouldn't get too excited about a violation of a simple trendline. nevertheless, even if the complex takes another hit, I would expect HUI to hold at least the 200 level.

to wrap up, I am positive on precious metals and encouraged by the price action the last several weeks. if prices drop from here I'll add to the mining stocks position, but since we have a decent amount already, continued appreciation won't bother me at all.