DJIA vs. HUI Predicting a Market Sell-off?

There is fear among DJIA bulls as the bears are licking their lips in hope their time in hibernation is over! Not even a falling oil price could push the markets higher so far this week, but from a slowing global economic picture to continuing Wall Street fraud to earnings downgrades during confession season may make the coming days, weeks very important! Gold investors should take note as a rapidly declining market could impact us as well. To illustrate this point, take a look at the chart below.

In the initial stages of the young HUI bull market in 2001 to mid-2002, the peak and subsequent drops in the Dow Jones Industrial Average (DJIA) did not have much of any impact on the precious metals equities. Yet, once the rapid drop from the low 9,000 to the high 7,000’s occurred during mid-2002, even the HUI was not immune to the severe sell-off. Granted, it came after a massive jump in the HUI from as low as 35 to 150, the correction took it briefly below 100, before the general markets and the HUI snapped back, quickly.

The second correction in later 2002 also pulled the HUI lower, but not as severely as the DJIA. The following descent in the DJIA in early 2003 also pulled us lower, before both markets rallied into early 2005.

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The gold price is an amalgam of diverse and changing influences, from Currencies to Jewellery, from Investors to Speculators. From Asia, to India, to Australia, to Canada, to South Africa, to the U.S.A. and to Asia, the gold price is of interest to all. It cannot be seen in isolation as a metal, but must be understood as a Global Thermometer measuring monetary, political, economic, stability as well as the raw demand / supply features of the metal itself. These factors do not merely add up to the price, but interact in sometimes strange ways, to produce the gold price. For example, rising prices often lead consequently to rising demand, as the appetite for the metal grows. Its price may rise in one currency and fall in another, at the same time. Overall, it reacts sensitively to the overall level of global stability, which, in turn, gives us the gold price.

It is our task in this letter to track these different features, giving you both the Technical Analysis and the fundamental features impacting on the gold price each week along with a T.A. focus on metal equities. It is our goal to help you to understand and profit from this market, wherever you are on this globe, in a professional manner.

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Then an interesting event began to take place, perhaps may not be identifiable as a trend, but worth noting. The HUI began to move ahead of major DJIA moves! Now with the HUI pressing towards the 190 level, the DJIA is looking like it wants to pierce significant support of its own, signalling another large drop to the 10,000 mark or below?

For its part, the HUI has a series of great supports from 150-190, yet trading as if gold were significantly under $400 an ounce. The extreme pessimism is a contrarian’s buy signal, but should a further sharp decline in the DJIA ensue, the HUI may have to wait for this general market correction to occur before initiating its next major rally to and past prior 258.60 highs. That stated, be assured that no relationship is exclusive!

Technical Commentary - DJIA Index & S&P Index -- Sell-off Near?

Technical Commentary - DJIA Index vs. HUI Index


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