The Gold Bugs Index Is Well Along in Its Correction
In the precious metals, like other markets, I am usually focused on market internals, especially by way of ratio charts. I am into other aspects, especially about the macro environment in which a given sector or market exists. Indeed, the ratio and ‘internals’ charting helps define the top-down macro.
Preamble aside, I began as a regular chart guy. I learned about bull and bear flags, volume considerations, Heads & Shoulders, trend analysis (long ago did I learn that trend “lines” are not as important as TAs like to believe; it’s other trend measures like moving average trends and higher/lower highs/lows that matter), overbought/sold, support/resistance and so on.
Like many others wearing a funny hat with a propeller on it, I think I can “see things” in my nominal stock and index charts. And I do see those things. But so do legions of other propeller heads. Always remember that about…
…and the women too!
When charting nominal stocks and markets, it’s best to keep an understanding that everybody sees perhaps slight variations of what you see. All of that said, I still love it.
Second preamble behind us, let’s look at the HUI Gold Bugs index from daily and monthly chart perspectives with little discussion about the current macro, which we’ll update in this weekend’s edition of NFTRH.
HUI Gold Bugs Index (Daily Chart)
The basis of the noted (green) support zone and the Fibonacci grid will be more apparent on the monthly chart, but the daily chart shows that the top of an important zone was tested after a plunge below the 200-day moving average (orange) and a whipsaw reversal. It also shows a retrace to 628, not quite to the 50% Fib on that low.
That is good downside work done by daily HUI. Now the bounce-back has more work to do if it is going to break the downtrend from the March 2nd “bull trap” high. Taking back the SMA 200 was step 1. Step 2 is to take out the SMA 50 (blue). Step 3? Yup, a higher high to the last notable high of 842.
A side note that the HUI chart does not show volume. But the gold stock sector has not registered capitulation volumes, which normally accompany a real correction low. We discussed this in more detail in NFTRH 919, along with associated interpretations.
Technically breaking the correction is still a lot to ask at this point, so as yet it’s best to view this as the tradeable rally that it already is. If this is not the next leg of the bull market, the risk/reward on the “tradeable” rally is diminished where Huey sits right now vs. the recent low.
HUI Gold Bugs Index (Monthly Chart)
But the monthly chart checks in with some good news on the bigger picture. The gross overbought situation has been relieved. Our original theme was (and still is) that this is not a blow-off, as in the end of a bull market, so much as a launch into a new secular bull.
But with the bull market (higher highs/lows) having begun in 2016, this 5th leg up sure was going to be terminal, preceding a hard pullback. As you can see, Huey has recently slammed the support zone that is defined by the 2010-2011 topping pattern. I’d have preferred a deeper decline into the support zone, to the 62% Fib around 590.
That may still be in the offing. However, a real bull market may not conveniently let passengers back on board at such a logical stop. But it is logical, and it is still viable.
Again, we’re not focusing on the top-down macro in this post. But that is going to be an important consideration in managing what is ahead for gold stocks. I have a firm view that they are no longer unique, like they mostly were in 2025. Gold, silver and the precious metals miners (and royalty, exploration, etc.) have led a wider anticipated group of beneficiary sub-sectors.
Bottom (Technical) Line and a Final Note
HUI has been doing as expected, taking a multi-month correction to clean up the excesses and test major support. But it has not yet broken the correction. The steps it would need to take to break the correction’s downtrend are noted above. Meanwhile, risk/reward is oh so much better than it was in January.
Okay, let’s slip in one “internals” chart for review (I couldn’t resist). Anyone jumping up and down about the contrary bullish implications of the deeply oversold BP is being hasty. For weeks now, we have been tracking BPGDM’s downside.
But it’s not the down spikes (you can’t get any lower than last week’s zero reading) that matter most. It’s that bull market moving average, the SMA 200, which smooths out the trend. As you can see, the trend is up, in a series of higher highs/lows. In other words, a bull market in the BPGDM to match the bull market in GDM (HUI, , etc.).
Great downside work has been done, but the SMA 200 is likely to grind out a higher low that is closer to the previous low before all is said and done. Don’t listen to headline hype or biased analysis. Go deeper. The correction on the daily chart of HUI above is not yet indicated to be over. The correction in the BPGDM’s 200 day (bull market) moving average is not yet indicated to be over either.
They may be over. But at this point that would be little more than a guess. In my opinion, more grinding is likely before the bull market resumes. That is the opinion of the current trends. Those opinions will change when trends start to change (ref. HUI’s 3 steps noted above).