Thursday, February 17, 2011

XAU Gold/Silver Stock Index May Be Ready To Breakout

The gold and silver mining stocks have lagged the precious metals badly during the latest advance with only a few exceptions.  That may be getting ready to change.  Given its poor relative strength performance, the recent failure of the XAU at its 2008 high prompted some observers to speculate that the index was about go into a serious decline.  However, after 3 weeks of rallying in what appears to be a 5 wave advance, the XAU has recovered its 2008 high.  Depending on how you count it this could be either the third or fourth attempt to breakout.  I would call it the fourth attempt as shown below.

As many have observed in the past, including WD Gann, when a market fails to breakout on the first, second, or third try it can be a good shorting opportunity.  However, a successful fourth attempt is a buy signal.  I suspect the XAU will rest here for 1 to 3 weeks in preparation for an advance that will make up for lost time.  This may be a good opportunity to take positions in leading gold and silver stocks.  Two candidates that I am looking at are IAG and SLW.

The Qs did in fact breakout from the triangle yesterday and slightly exceeded the calculated targets.  It just seems to me that this market is running on borrowed time with respect to a needed correction.  A four week pullback to the 2010 highs might be a good long entry for the next advance as long as it occurs as a corrective pattern.

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