AEM, GLD - May 3, 2009

some charts courtesy of stockcharts.com

Let’s talk money, real money!

Last time I wrote about AEM and gold stocks, I said

I can understand all bullish arguments, and am very open to adopt them, but I have chosen to exercise caution for now based on the downtrend in effect and low volume of the bounce, and the ferocity of the 2-day drop of April 16, and 17

As it turned out, that cautious was warranted as gold stocks went through another round of selling.

This is a 60-minute chart of AEM and I have highlighted last week’s close

AEM made an intraday lower low. It is caught in a downward channel. It was yet again stopped below the 45 dollar support and climbed back above it. A support/resistance level that gets tested frequently in a short span of time runs the risk of becoming weak and penetrable.

Let’s look at the daily

This is not a very pretty picture. Stock is desperately hanging to the 45 support. Next level of support comes around 40

Let’s look at the weekly

This is a really dire picture of a stock at the verge of collapse. I am not predicting collapse, just reporting what I see.

I believe that in the market place, euphoric bullishness and paranoid bearishness are highly contagious diseases, spreading fast through the psyche of market participants.

AEM needs something, whatever that might be, to revive it and turn it around before bearishness on the stock spreads, and time is running out.

The weak technical picture is not isolated to AEM. This is Goldcorp

Sitting on 144 MA. There is support around 25, and then 22. GG also need some buyers to show up and help it recover from these levels

There are short term divergences. There is also an ominous looking potential Inv. H&S. Price is caught in a channel leading down. It is a very interesting situation. Can the divergence turn the stock and target 30-32, or will the price fail, and break the potential neckline?

Let's take look at Gold Miners ETF

Look at the confluence of technical lines around 30. Also notice the note that I had on Jan 30. It says

“surge in volume, stagnant price and loss of momentum”

not a bad diagnosis where this sick poppy is concerned.

Since then, GDX has done nothing. There is no crystal ball here, just technical analysis and probabilistic models based on statistical observation of the past.

For trading purposes, these are all at or near important support levels, and a decent short term buy signal may be used for a small long trade with tight stops. But unemotional discipline is a must.

This is a breadth chart of the HUI Index

There has been some internal improvement, but I can’t say if it is a pause before the breakdown, or the beginning of a new move up. We have to watch the price to see if firms up or not.

This is another breadth chart

For the most part above indicators are following the price and look weak.

Overall, I think it’s time for caution where gold diggers are concerned until things show signs of improvement.

Gold itself did not do much either

Downtrend continues and the down channel is intact.

Here, as well, there is a trade for the adventurous. The decline has been on contracting volume.

Price seems to have the support of its long term MAs, and very close to the most recent low. If we have seen the lows, and the potential Inv H&S is indeed in play, then the most recent lows should not be violated.

All-in-all, some trade ideas with well-defined risk/reward parameters are there for aggressive traders, but, other than that, a cautious stand is warranted.