Wednesday, February 25, 2009

Caution On Gold Stocks



Above is a daily chart of the gold stocks index (XAU). Notice in the lower panel that the MACD has crossed after forming a bearish divergence. The XAU index also broke it's uptrend line.

In the chart below we'll take a look at gold stocks (XAU) vs Gold the commodity. Notice how Gold took out last summer's highs but the gold stocks have not. This is a very significant bearish divergence in my opinion.

Given the technical picture of both charts I have to be cautious/bearish on gold stocks. It's very hard to short the strongest group in the marketplace but if you do happen to be long these stocks, you may want to at least trail a close stop to lock in any gains that you may have on your existing long positions.

1 comment:

downtowntrader said...

Nice post Kevin,
I presented a similar argument in an article I wrote a couple nights ago. Beyond not making highs with Gold, many miners couldn't even make it above their 200-Day MA's. That's a pretty big divergence.

Joey

http://community.investopedia.com/news/cadvisor/cotd/archive/GG20090225.aspx

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