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The Technical Picture for Gold Stocks

By Jeff Clark
Tuesday, March 13, 2007

Big wave surfers are ready to storm the beach.
Two months ago, 24 of the world's best big wave surfers received notice that the Mavericks Surf Contest could begin any day.
Mavericks – the Super Bowl of big wave surfing – takes place every year at about this time. Weather conditions in the Pacific Ocean just north of Half Moon Bay, California, combine with the topography of the ocean floor to create swells that can only be described as "gnarly, dude."
Large ocean swells rush unobstructed through the deepwater canyon just west of Mavericks before being funneled towards the main bowl. The shelf of the main bowl is 18-feet deep and drops to depths in excess of 70 feet in less than one-quarter of a mile.
When a big swell slams into the reef, it stops in its tracks. All the power and speed that pushed the swell for many thousands of miles rises and heaves towards the shore and forms Mavericks – the most challenging wave on the planet.
The surfing contest takes place between January and March each year. When the waves start to break, invitees are given just 24 hours notice before they're expected in Half Moon Bay, ready to rip.
But this year, there may not be a Mavericks Surf Contest.
Big waves just haven't appeared yet. The only thing crashing along the coast of Half Moon Bay are the raised hopes of surfers and surfing fans. A few storms back in December set the stage for a terrific season. But the past two months have been unusually mild, and that'll probably be the case for the next three weeks as well.
So, like Chicago Cubs fans, surfers will have to pin their hopes on next year.
And, in that respect, surfers now know what it's like to invest in gold stocks.
Investing in gold stocks is like surfing the big waves. Most of the time, the ocean is calm. But every once in a while, conditions come together and create an environment for really big waves. When that happens, gold-stock investors are given very little notice before they have to paddle out and try to catch the "big one" and ride it all the way back to shore.
In November 2005, Big Trend Report subscribers caught the big one and rode it to triple-digit gains in several stocks in just six months' time. Since then, we've been hanging out on the beach waiting for the same sort of conditions to come along again.
Here's a recent chart of the Gold Bugs Index (HUI)...
This chart is a good illustration of a consolidating-triangle pattern – which is basically a series of lower highs and higher lows. As the trading range of a stock becomes more and more narrow, and the support and resistance lines converge, all of the stock's energy is funneled through a smaller and smaller opening. And, like a wall of water funneling through the reef at Mavericks, when a stock breaks out of this pattern, it creates an enormous wave.
But, as you can tell from this chart, the conditions just aren't right for a big move in gold stocks. Not yet, anyway.
The trading range needs to narrow, and the support and resistance lines need to come closer together. We're still probably several months away from a truly big wave in the gold market.
So just as surfers will have to look somewhere other than Mavericks for the big waves this year, investors have to look somewhere other than gold.
Fortunately, there's a tsunami building in another sector... the semiconductors. The stocks are cheap and beaten down. The risks are small. And the water is just starting to rise.
The momentum is building, and if the waves start to break like I think they will, then we're in for a totally gnarly summer – dude.
Best regards and good trading,
Jeff Clark

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Market Watch
Symbol Price
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%