the Yuppie Pig

With some of the speculation that perhaps the ECB is going to intervene in this latest saga of the global debt crisis, gold has rallied hard. Of course, their ultimate solution will be to print massive amounts of money to inflate the debt away which is going to leave hard assets rising in price which is the premise behind my view of gold's rapid price increase. The first tip off, was that it was actually green while the broader market was in the depths of the intraday lows and once the reversal began, gold stocks never looked back. It's one of those trades where you had to be watching the market intraday to get into. We saw positive price action, momentum indicators begin to trend up, and the ever popular (and still working) GDX:GLD ratio break to the upside on the intraday chart.

Taking a step back, lets examine the daily chart which suggests there is more room to run. If we operate under the premise that the ECB is entertaining the idea to flood the world with more money yet again and thus competitive devaluation of currencies (debt) is taking another step forward, then gold and gold stocks are going to make another advance. For the GDX (the gold stock ETF), we can see that it is going to break out of this descending triangle. I want to note a few technical points on this chart.

1. Massive volume on on the reversal day ending the day up 5% while the market was flat.
2. GDX:GLD ratio broke the downtrend.
3. Positive divergence on the MACD Histogram (not the MACD itself).
4. Stochastics are oversold and beginning to turn up.

Resistance looks to be in the 44-46 price range and would also be the upper channel of the current downtrend. If the market reversal continues over the next few days, I suspect gold and gold stocks will outperform the broader market. Personally, I use the GDX as a hedge to any short stock exposure I might have, as it is now positively correlated with the market.