Elliot wave still calling a 25% correction in gold and silver....

Elliot wave still calling a 25% correction in gold and silver. This will be put on hold if gold rises above $575.80.

Write up on silver and MMN below fro Clif Droke!

March 2006


Silver stocks showing improvement (many new highs showing up on our list)

The XAU gold/silver index closed the latest week at 140.51, relatively unchanged for the week but above its low from last week. Also, the XAU closed just barely above its 15-day moving average for an early sign that just maybe a short-term bottoming process is already well underway. The Amex Gold Bugs Index (HUI) closed more decisively above its 15-day MA on Friday and finished the week at 320.64.

Two things are significant about the recent pullback in the mining stock sector. First, while the number of new 10-week highs on our list of 50 actively traded mining shares shrank significantly for a period of a couple of weeks (including on a rate of change basis), the number of new lows were virtually non-existent throughout. That is, the overwhelming majority of mining shares held above their previous 10-week lows.




Secondly, at no time during the pullback/correction did the XAU or HUI mining indices break below either the 60-day or 90-day moving average. This signifies that the dominant interim trend is still technically up. Since these important moving averages are also still rising at a good rate of change, it also holds forth the potential that higher highs can be made in the interim before the next major top in the mining share sector.

It could still be a while longer before either the XAU or HUI are ready to break out to a new high. But within the mining stock universe there will be stocks that will continue to make new highs, even as there will be laggards. This could equate to a trading range for the indices for a while longer until enough consolidation has taken place to rid the sector of the excess internal weakness that built up in past weeks (not to mention absorbing the excess supply of shares that was spilled onto the market by those traders who ran for the exits as soon as the market broke earlier this month).

Among the silver mines, selling pressure has been extremely light recently compared to other areas of the metals sector (copper in particular). In fact, hardly any stocks at all on our list of actively traded gold and silver shares have been found to show up on the 10-week new lows list. This shows that the internal situation, though somewhat weak, hasn't deteriorated much despite the earlier February pullback and there is now intense selling pressure so far.

Moreover, there has already been a noticeable increase of stocks making our list of new 10-week highs among the gold and silver shares. On Friday, Feb. 24, there were several gold and silver stocks among 50 making new highs and no new lows. That's the best 1-day reading we've had since Feb. 6! Making the new highs list on Friday among the broad precious metals sector were: AEM, CRJ:TSX, KRY, DEZ, ECU:TSX, GAM:TSX, PTHBF, SLW and WTZ. I've always advocated trading mainly among the stocks that consistently show up on the new highs list since they reflect momentum as well as relative strength. I believe most of the stocks just mentioned will continue to make new highs in the near term. Agnico-Eagle (AEM, recent price $26.63) looks particularly promising.

Most of the stocks making the new highs list on Friday, Feb. 24, were silver shares. This is positive in that the silvers tend the lead the gold shares and as long as a fair number of actively traded silver stocks are showing up on the new highs list each week it reflects a relatively healthy market. Only when the silvers start diverging lower to the golds (or worse, when silver stocks begin showing up on the 10-week new lows list) is there a reason for major concern. Among the 40 actively traded silver stocks I monitor there were 10 new highs on Friday, Feb. 24, and only one new low (CDU:TSXV). The new highs were: CDE, SIL, ECU:TSXV, EDR:TSX, EXN:TSXV, MMN:AU, MAG, TSXV, QTA,TSXV, SBB:TSXV, SLW, and WTZ. Again, short-term traders should stick to trading mostly among these shares which consistently show up on the new 10-week highs list as they are the ones most likely to continue forging higher in the foreseeable future (due to forward momentum).

Yet another indication that selling pressure is gradually lifting across the silver mining share sector is the number of silver stocks below the 15-day moving average. Each day the number of stocks below the 15-day MA has been shrinking, and as of Friday, Feb. 24, the number of silver stocks on our list above the 15-day MA outnumbered the stocks by a healthy margin after showing steady improvement all week. To be exact there were only seven of forty silver shares below the 15-day MA on Friday. This is a good sign in the short-term, but it needs to continue for a few more days to ensure a healthy market. Hopefully with time the market can show additional internal improvement.

Some of the actively traded silver stocks were strong performers this past week with market leaders Western Silver (WTZ) and Apex (SIL) posting solid gains. WTZ in particular showed that momentum is still a force to be reckoned with among the silvers as it skyrocketed over 30% in just a couple of days. There should be other silver shares joining the list of new highs soon, and that would likely include Pan American Silver (PAAS), which also shows lingering upward momentum and the potential to make higher highs in the near term. When the silvers lead the way, it's usually a good indication for the gold stocks in general.

Turning our attention to the spot silver market, there's no denying the intermediate-term market trend looks good. The silver price has been trending steadily higher above its dominant interim 30-day, 60-day and 90-day moving averages, which have been locked into a bullish position for months. This isn't reason to let our guard down, however, since there's always a danger of a correction once the 30/60/90-day moving averages have been trending higher for more than 3-4 months (based on previous observations). But since interim bias is still up, any corrective pullbacks aren't likely to break the upward trend and should be relatively short in duration. Traders should monitor the $8.70-$9.00 area on all pullbacks in the coming weeks, which encompasses the area between the key 60-day and 90-day moving averages. Resistance for March is the nearby $10.00 level, an important psychological benchmark.




To summarize, the short-term for the overall mining stock sector as measured by XAU and HUI is still relatively weak and unsettled as reflected by the short-term internal indicators. The dominant interim trend and bias for the sector remains positive, however, as reflected in the 60-day and 90-day moving averages of most actively traded gold stocks, as well as by 60-day HILMO. We still don't have confirmation that the latest correction phase has ended for the XAU and are awaiting a turnaround in the shorter-term HILMO indicators. Well also need to see even more gold stocks getting -- and staying -- above their 15-day moving averages in the next few days.

That said, there is still enough upward momentum to allow for profitable trades among the best performing gold and silver stocks, especially those that have recently joined the new 10-week highs list and are making higher highs and higher lows on a regular basis. Short-term traders should focus mainly on those stocks which already have made a higher high relative to the XAU. There are even a few potential short-term turnaround candidates among the laggard silver shares (discussed below) for the more aggressively inclined traders. The overall trend for the physical silver market remains bullish as reflected in the 30/60/90-day moving averages.


Mining Stocks


We noted last month that MacMin Silver (MMN:Sydney ASX), currently $0.365 as of Feb. 24, was still trending above the 30-day and 60-day key interim moving averages. Our conservative upside target at the $0.35 area mentioned in the previous report was overcome during the week of Feb. 20 and MMN now has joined the list of mining stocks making new 10-week highs, a positive momentum indication in the near-term. Traders take some profits and raise stops to slightly below $0.25 where the 60-day MA intersects.