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February 25, 2010

Turnaround Tue... er, Thursday

After the impressive reversal posted by precious metals and especially miners during today's session, I have no doubt that many readers are visiting The DOCument this evening seeking a declaration that our parabolic run is underway. Indeed, it was an impressive reversal, and there is volume to prove it. Mining shares paved the way for the rally by posting 1.5% early gains while the general stock market was down as much. At the time, the dollar index was struggling to hold above 81, but when it gave way, buy programs kicked into high gear.

GDX gold miners ETF

This action is exactly the behavior I described yesterday, using the HUI as an example, pertaining to the back-test of a congestion reversal, and it was seen in many of the individual issues, not just the ETFs and indexes.

The dollar index remains bound by last Friday's range, but today's downside reversal is encouraging:

dollar index chart

S&P 500 daily chart

Now I will have to offer apologies because the parabolic declaration will have to wait. The key word to describe today's action... encouraging... is about all I have to offer in the way of subjectivism. There are three crucial developments that need to unfold before I am willing to swing to a more optimistic tone.

First, precious metals need to post a day of wild magic. By "wild" I mean gains of 50 bucks and 50 cents, respectively, for gold and silver. That kind of sudden launch is needed to leave behind the tentative sideliners and get them chasing our assets.

Second, the S&P 500 needs to act like it's coming out of a yearly cycle low. A healthy bull run day to post a more-than-marginal close above the 65DMA would do the trick.

Third, junior mining shares need to be drawn into a fray of speculative frenzy. During the drive into the December peak, the juniors were posting 10% daily gains. Perhaps the 10% sessions won't be seen until the end of a big run, but a couple of 5-6% days in the near future would tell us that big money is buying beta.

So, today's action offered a big step in the right direction, but we've had enough stepping. We need a leap.

 

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