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-- Posted Friday, 15 September 2006 | Digg This Article
You can contact Frank about purchasing a subscription to his newsletter at fbarbera35@hotmail.com Tuesday - September 12th Asset Class: | Portfolio Asset Allocation | | Aggressive: Conservative: | Gold Stocks: | 100% 96% | Physical Gold: | 0% 4% | U.S. Equities Short Rydex URSA/Shorts | 0% 0% | International Bonds: | -- -- | Other Investments: | 0% 0% | Cash: | 0 % 0% | Technical Indicators: | 09/12/2006 | 09/11/06 | 09/08/06 | 09/07/06 | 09/06/06 | McClellan Oscillator: | -330 | -280 | -180 | -61 | +78 | S/T Up/Down Vol. Ratio: | .289 | .369 | .634 | .913 | 1.442 | 9 Day RSI | +25.22 | +26.02 | +38.76 | +47.06 | +62.04 | S/T Put/Call Oscillator: | -224.63 | -56.13 | +117.13 | +116.16 | +138.71 | Interm. Put/Call Oscillator: | -93.12 | -29.91 | +28.95 | +13.92 | -10.34 | Summation Index : | 1665.26 | 1813.57 | 1939.59 | 2020.37 | 2047.78 | Int.Volume Trin: | 1.104 | 1.017 | .919 | .907 | .904 | “New” Trin: | 1.641 | 1.347 | 1.067 | .911 | .817 | Detrend Med Term A/D Osc. | -31.80 | -27.16 | -19.60 | -10.66 | -.12 | Primary Trend Model: | -11.87 | -8.42 | -1.27 | +.98 | +2.93 | | | | | | | |
Because of the extreme action in commodity related markets, we are putting out another daily update on the heels of yesterdays report. Our Bottom Line conclusions are unchanged, namely that the Gold Stocks are very oversold and due for a rally. However, we wanted to update the technical gauges because the numbers continue to move very strongly -- to even greater oversold extremes, and this underscores the proximity to what we believe should be an important medium to longer range low. Again, we repeat our comments made last night to expect a ‘bottoming process” and that just because we see a trading rally over the next few days does not necessarily mean that all of the downside action is concluded. Typically, within a bottoming process, major oversold extremes will be hit first, and then followed by a sizeable trading rally which lifts prices off the low. Importantly, this is then often followed with a retest decline, either a partial or full retest decline, of the prior low. It is on the second “retest” decline that the kind of positive divergences show up to indicate a market about to chance direction in earnest. In our opinion, we continue to expect that this process in the Gold Stocks will take between 10 to 15 days. That said, here’s an update on where the indicators closed today with (intentionally) a lot of charts for those of you who like to review the many gauges we follow. Beginning with our short term gauges, the Ratio of Up-to-Down Volume closed today at .289, below .30 for the first time since the June 13th closing low of 120.08 on the XAU, when this gauge closed at a value of .155. Readings below .30 on the Up-to-Down Volume gauge are very rare, and there have only been 150 closing readings below .30 in the last 6,710 trading days going back to January 1, 1980 or 2.25% of the time. Over the last five years encompassing the Gold bull market, there have been 10 clusters of readings that have delineated important bottoms on this gauge where the indicator had one day or more below .30. Within the vast majority of clusters (of such readings below .30), far and away the lions share are single day readings, or two days readings ‘back to back’ wherein a rally then follows. While severe bear market conditions have from time to time generated longer strings of consecutive readings below .30, usually a bear market was well underway and from what we can tell conditions within the technical structure of the market were quite different then those which prevail right now. Consequently, we believe there is a very good chance that between now and Thursday, a decent trading rally in the gold stocks should be getting underway.  Above: The Short Term Ratio of Up-to-Down Volume and Below: The McClellan Oscillator.
For the McClellan Oscillator, today’s reading of –330 has only been matched or exceeded 67 times during the last 6,710 trading days, so we are now with the realm of less then 1% of the historical data. Again, this emphasizes the idea that this market is heavily compressed and due for a sharp bounce. Turning to our Medium Term ARMS Indices, the NEW TRIN exploded sharply higher once again on Tuesday closing at a reading of 1.641. Historically, readings above 1.65 have defined intermediate term oversold conditions for the Gold Stocks, and mind you, this gauge will likely continue to rise sharply over the next few days even if the market rallies (just on carry over downside momentum). For all of us looking for an important bottom on both Gold and the Gold Stocks seeing this gauge move above 1.65 is welcome news as it has an excellent track record at delineating oversold extremes and is probably our very best bottom finder.
Above: the NEW TRIN In addition to the NEW TRIN, our other Medium Term ARMS Index, the Volume Weighted ARMS or OPEN TRIN, ended at a reading of 1.104 today and moved back above its equivalent upper oversold threshold of 1.10. Again, this is a good sign that the selling of late has been extreme enough to wash out the market and likely hammer in a significant bottom.
Prior Page: The OPEN TRIN or VOLUME WEIGHTED TRIN above 1.10 is oversold and bullish for the market.
Among breadth gauges, the Medium Term A/D Oscillator fully crossed below –30.00, it’s oversold benchmark with today’s trading and ended at a reading of –31.80, down from –27.16 yesterday. Here again we are heavily oversold. Turning to sentiment gauges, the chart below shows the XAU Index
Short Term Dollar Weighted Call to Put Premium Oscillator which today closed at –224.63 wherein readings below –225 to –230 have usually identified a predominately ‘washed out’ crowd psychology. This gauge is extremely volatile, and can also continue to move down, even if the market begins to rally. Typically, we tend to place greater weight on the more Medium Term (2 to 3 month) Put-Call gauges. Before moving on, we note that the companion tool, the Short Term Put-to-Call Premium Ratio ended today at 1.82, up from 1.17 yesterday and is also closing fast on the 2.00 medium term upper oversold benchmark.
Moving on to the more important Medium Term Options gauges, we did see a great deal further heavy Put buying in Tuesday’s trading – the highest in months, and in some cases, the highest ever seen. In the case of the XAU options gauges, the progress is starting to come along very nicely, with the Medium Term Call to Put Premium Oscillator ending today at -93.12, down from –29.91 yesterday.
As we noted yesterday, volume in the XAU options last week was not that high – given the decline, but has been very high this week on both Monday and Tuesday and skewed better than 3 to 1 toward Puts. When we talk about our medium term oscillator, the chart on the bottom of Page 5, you need not only a high plurality of bearish Put Premiums to Call Premiums, but you also need this to happen on high volume to move the oscillator down. Because not all medium term sell offs behave the same way, we also maintain the Medium Term Ratio chart above, which is based on just the pure Ratio of the Dollar Weighted Put Premium to Call Premium each day. On this chart, the gauge is spiking up sharply and ended today at 1.293 up from 1.085 yesterday. Traditionally, this Ratio chart is probably the best XAU options gauge we have, and readings above 1.50 are very bullish for the XAU normally accompanying a major low. At our present rate of rise, we could easily see a print of 1.50 or higher on this gauge this week, which would really round out a bullish view.
Of course, as we have also been pointing out over the last few days, the real action in options this go around has been in the individual stocks, where volume has sky-rocketed off the charts. As an exampleover the last few weeks, daily XAU Put volumes have been running around $.75M to $1.5M per day. Today, on Tuesday, XAU total Dollar Weighted Put Volume was closed to $8M – so a huge jump which is positive to be sure. That said, even today’s XAU Put Volume of $8M pales in comparison to the stock universe Put Volume figure of $52M, and that figures is down from a daily tally of over $85M the prior few days. Our Gold Stock universe includes names like AU,ABX,NEM,AEM, GFI,GG,HMY, and HL and with nearly all of the money going into bearish bets of late, our Medium Term Dollar Weighted Call to Put Premium Oscillator just continues to move downward off the chart ending Tuesday at -327.61, down from –243.43 yesterday. It is truly an incredible chart as is the accompanying Ratio gauge which also spiked up even higher today ending at 3.28, up from 2.63 yesterday. 
Finally, we wanted to end today’s update with an chart of our Primary Trend Model which closed today at a reading of -11.87 which is fully oversold below the –10.00 lower oversold. Within this model which encompassed around 20 to 25 different technical gauges of both short and medium term duration, the only gauges not contributing much into the model right now are the options gauges which for this particular model, only includes the XAU Index options. Were we to include the Individual Gold Stock Options readings seen on the two preceding charts, its is beyond question that the model would be even more heavily oversold at the current time. Nevertheless, readings below –10.00 are rare and invariably lead to strong recovery rallies. Tomorrow, any hourly close back above 132.00 on the XAU would be bullish and would probably confirm that a major low (or at least a significant portion of a major low) has been seen. (Again: remember we may need to retest the lows in a few days after a rally). Above 132 on the XAU, we would not be the least bit surprised to see a run at 140.00. For nearby December Gold, any move back above $602 would be bullish and would argue for a further rally back up toward $615 to $620.00. 
We will be watching things closely, and will issue a flash update if we see any major changes to our work taking place. That’s all for now,
Frank Click here for Frank's latest comments on gold and mining shares dated Thursday – September 14th. You can contact Frank about purchasing a subscription to his newsletter at fbarbera35@hotmail.com
Copyright 2006. All Rights Reserved. It is not permitted to forward or exchange this report with anyone else. GST bases its information on techniques and sources that have been found to be reliable in the past, and GST tries to base opinions on sound judgement and research, however, we do not guarantee that future results will match past performance and no guarantee can be made that advice will be profitable. GST accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks. All Investors are encouraged to do their own homework, using independent thought and to make their own decisions, as where markets are concerned, even the best laid plans can occasionally go wrong. Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with GST may at times have positions in securities mentioned. GST encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital. No guarantee can be made to the accuracy of text or charts. GST reserves the right to refuse service to anyone. Photo-copying or forwarding this report is prohibited without expressed permission of the editor: FrankGST@aol.com
-- Posted Friday, 15 September 2006 | Digg This Article
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