Belated Intermediate Outlook Turn: Lightening Up On Gold Jr Producers

Friday afternoon, I lightened up on my gold jr producers selling about 12% of my holdings. The long term fundamentals appear to be bullish for gold (and thus jr miners), but I don't like the short-term technical action. I admit that some of the recent bearish technical action is the result of gold cartel actions, but I don't think that invalidates technical analysis. The gold cartel triggered the gold reversal last last July and this kind of technical analysis might have protected me from the gold fall from around $900 gold all the way to under $750. This time I'm willing to lose some potential winnings. I'm playing it safe and getting out of the way (at least partially) when gold technicals turn bearish.

Ok, so here's the reasons I'm short term lightening up (in order of importance):

• These Jr gold producers are illiquid. I can't just decide one day to get out without moving the stock price quite a ways. So, I'm lightening in a case where, if the investments were liquid (like GLD, AUY, KGC, NEM, etc.) I would wait to see what happens next.
• The daily gold chart has turned bearish in my view (along with some supporting charts like the silver). This is discussed further below.
• Expert opinion: David Morgan (whose public outlook is "perma-bull" and who is on-board with the gold cartel idea) this week advised his subscribers to sell 25% (click here) of their precious metal mining stocks. I think the guy's calls have been pretty good. Rick Ackerman, the short-term trader has recently turned bearish on gold (click here). I've been paying attention to him and he seems to make good calls.
• Seasonals - we are getting close to the "sell in may and go away" period for gold. Resource stocks (and precious metal stocks in particular) are pretty notorious for having bad summers.
• The Indians have not been buying gold for some time. I believe they are the stoppers for any downward turn in the price of gold. The subscription-based LeMetropoleCafe's Midas commentary provides a daily read on Indian buying.
• $CDNX index (the best index for tracking gold exploration stocks) looks overbought.

Here's some data that looks bullish (short and long term) for gold (and my Jr gold producer minings stocks):

• There are no events immediately coming up, that typically triggers gold cartel gold price suppression. This past week was filled with these short term events: G20 meeting, Auto industry travails and the unemployment numbers.
• The US dollar chart is turning bearish.
• Almost every fiat currency has inflationary monetary growth (M1, M2, etc.) as they attempt to stimulate their economies.
• The precious metal Jr producers should be making a lot of money even with $800 gold. NOTE: This is not really a defense for these stocks. Resource stocks have gotten clobbered when their commodities turned south even though with the reduced prices the companies were still making lots of money. This is because when a commodity price starts falling there is no telling how low it will go (witness the catastrophic falls of oil, natural gas, nickel, copper, zinc and lead). The fact that my base metal miners were making money at current prices is the main reason that I used to justify staying in base metal miners after the commodities themselves turned bearish. This kept me from getting out of those base metal miners in time to preserve significant profits. I don't want to repeat this mistake.
• The economic data shows a continued global contraction (despite the recent boyant stock market action).
• The fraudster, banksters (who got us into this mess) continue to be fully in charge of the US economic policy and so can be expected to stink up the place as they try to save themselves and their buddies at the expense of the average Joe and the USA and global economy. 

So, I see the bullish aspects of the situation, but am lightening a little based primarily on the technical action. This is my current strategy: Use technicals to get me out of positions thus protecting me from too much damage when my fundamental viewpoint might be flawed.

This is the gold chart that has the bearish things I'm seeing:

Here's the bearish things I see in this chart (in order of importance):

• Uptrend from October 08 broken.
• Inability to reach a new high in Feb 09.
• First fibonacci breakdown (fibonaccis from Mar 08 high to Oct 08 low).
• 50 day moving average break down. 
• Fell through the psychologically important $900 round number.
• Right at a bunch of support between $900 and $880. 
• Next support is around $856 where the next fibonacci lies and where the 200 day moving average lies. 
• RSI and MACD are moving gently lower but not oversold.

I confess I don't see anything clearly bullish in this chart. The main positives I see are:

• Still well above the 50% fibonacci and could easily regain the first (38%) fibonacci with one good day. This occurring and holding would change my technical outlook to neutral or bullish. 
• Price action from the Mar 08 high hit an intermediate low around 1.5 months after the high. This year we are just about 1.5 months from that the high. So, cyclically we could turn up for a while here.
• Still well above the 200 day moving average with the 50 day moving average still moving up.

So, I'm taking it day by day, holding cash. At this point I will probably continue to sell about 3-5% of my portfolio every day until we get one of the following:

• Indian buying - this the most important indicator of real, short-term fundamental support.
• Gold closing above $905-910 (I'm not sure about the actual value I'll use). This puts us above that first fibonacci which is around $898 and above the psychologically important $900 round number.
• Gold becoming oversold as indicated by a sub-30 RSI.
• The US Dollar Index falling under 82 (breaking down through that last fibonacci).

Well, I don't claim to be a great trader, but I do take responsibility for my own investing / trading decisions and this is what I'm' doing now. Leave me a comment on what you current outlook is and whether its changing.

MontyHigh, www.worldofwallstreet

Here's the overbought (see RSI) $CDNX chart.

Here's the US dollar chart.

Here's the silver chart.