Precious Metals - September 25, 2011

In a premium post of September 6, I presented a weekly chart of HUI and said

“notice that I can also draw an expanding megaphone formation as I have done with blue lines. Miners have been the laggards of the PM area. They may breakout and become leaders, but if I play just for or from a breakout of the laggards, I would try to book partial as soon as I can (using daily and 60-min charts) to reduce my cost in case the breakout is just a last gasp of rotation from metals into lagging miners before a more serious correction unfolds in the area.

None of this changes anything longer term for me as far as keeping a core in metals or select miners is concerned. This is just about trying to make some sense out of the shorter term moves and manage any possible short-term trades“

This is the weekly chart of HUI now

Hindsight is, of course 20/20. and it more looks like a the megaphone (if not worse) than a good breakout to infinity and beyond. But we were ready for this, first by thinking of the possibility of a megaphone for the laggards, and then by setting a certain level as I wrote in the premium post of September 8, as I wrote for HUI

“I think it is important for price to stay above 600, or, if I am a bit lenient, above 580-600″

This is what has since happened

This is what has since happened

The first drop broke a short-term downtrend but held the 580 area and attempted a bounce. I typically draw another trend line in situations like this. The bounce failed to make a higher high, the second drop cut the second short-term gapped below second trend line and 580 area and it was like: See You Later to all who were trapped buying the top for a break out. Such was the force of the drop that even a short on Thursday gap down would be profitable nicely on Friday for a one-day trade.

Now, what?

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