Gold, silver and the USD Index didn’t do much in yesterday’s trading, but that was not the case with mining stocks. The divergence between gold stocks and gold was particularly visible and the implications are once again particularly important.
Let’s take a look at the charts, starting with the HUI Index (gold stock chart courtesy of StockCharts).
The gold stocks’ reaction to the recent USD weakness and gold’s previous move higher has been weak for many days, but Monday’s session took the weakness to the extreme. Gold ended the session more or less unchanged and this lack of a continuation of the rally was enough for the HUI Index to erase almost the entire previous week of gains.
This could have been understandable if the general stock market had also declined substantially, pushing all stocks – including miners – much lower. However, that was not the case. Miners had no good reason to decline – and yet they did. It doesn’t get much clearer than that as far as the degrees of underperformance and weakness are concerned.
Please note that gold stocks declined right after the move to the combination of strong resistance lines and their reversal triggered a sell signal from the Stochastic Indicator. The implications are clearly bearish.
If the above wasn’t enough, the decline took place on big volume, while the previous daily upswings took place on low volume. The price-volume analysis clearly confirms that the July upswing was a counter-trend correction and that down is the true direction in which the market is heading.
Let’s keep in mind that the additional significant confirmation comes from the weekly volume readings (the text below is a quote from yesterday’s Gold Trading Alert), but it’s impact is present also today – and it will likely continue to be present in the following weeks:
