Gold's Blees Rating Reaches 99

The Commitment of Traders report (COT) that was published at the close of last Friday's trade delivered a couple of welcomed extremes for the gold bugs. 

First, the report revealed that the futures contract positions of the 'Managed Money' traders substantially added to their short positions while simultaneously reducing their number of long contracts.  In short, they rearranged their portfolio to the bearish side by 28,000 contracts. This subset of investors was already holding a huge short position as of the previous week, which they made even larger this past week.

I don't know what kind of Kool-Aid these 'Managed Money' guys are drinking but something tells me they got it from Jim Jones for a really good price.

And secondly, the Blees Rating attained a score of 99 - which is hugely bullish for gold. The Blees rating is simply a measure of how bullish or bearish 'Commercial Traders' are when compared to the last 18 months. 

The formula for this rating is a bit complicated and uses the Commercial Traders net contract holdings at the date of the current COT report, then subtracts the least number of net contracts held on any one of the past 78 weeks. This creates the numerator of a fraction. The denominator is found as the minimum number of net contracts in the past 78 weeks subtracted from the maximum number of net contracts in the past 78 weeks. Finally, once the fraction is computed it is multiplied by 100.

I took a shot at making a couple of charts using MS Excel to plot the weekly price of gold and the Blees Rating. The first chart looks at the time period of the past 4 years. The second chart is something of a close up using a 2 year time frame.

I am a bit annoyed that this second chart did not turn out as nicely as the first, but you get what you pay for here at the TSItrader. No doubt about that.

If the Blees Rating is new to you the thing to notice is that when the rating reaches 100 it means that the commercial traders are expecting gold to now rise. And guess what? They always seem to be correct.

Also you can notice that once gold does begin to rise the Blees Rating will begin to fall. That is because this subset of traders will begin to cash in their chips and eventually end up with an opposite reading nearer 0 when price peaks.

I am expecting good things, and very soon.

Gold Futures and Managed Money

I came across some information earlier this evening that appears to be not only interesting, but may also provide a decent clue that gold is not likely to trade much, if any, lower.

http://treo.typepad.com/files/20130218-ggr-cot-notes.pdf

The link above will take you to the full discussion and I wish all credit to be given this author, Mr. Arensberg and his GGR - Got Gold Report, from which I have shared the chart below.

What follows is one of his excellent charts from his publication dated a few days ago - February 18th. It details the weekly net Managed Money COT gold position (blue) as well as the price movement of gold futures since 2008 (maroon).

I encourage you to read his report if you are interested in either the current positioning of the various powers within the Commitment of Traders report (COT) or if you are specifically interested in the widely touted notion that hedge funds are abandoning their gold investment positions.

My interest in this chart, to be honest, is to assess how smart these hedge funds are. I have drawn 5 light blue arrows to locations in the past 7 years when the positioning of Managed Money was heavily short. At present you may notice that they are more short of gold than anytime since 2008.

Anyway, I am very impressed with their trading. They have managed to consistently telephone the  exact bottoms of gold's enormous up legs.

OK. One more check mark in the box for the patient bulls.  :-)

You know, when those smart floor traders start to see these hedge funds running to cover these shorts it could get really exciting. I mean, these boys all play for blood and nothing appeals more to them than taking care of a wounded animal with a proper feast for themselves.

Tisk, tisk for the hedgies and their brilliant leaders.

BUY CGR - $0.43

I managed to scrape up some new money and decided to lower my break even cost on Claude Resources (CGR) with this purchase at 43 cents per share. 

My TSI Trading record has been updated.

Here is what the daily chart of CGR looked like earlier this morning.

Click on any chart to ENLARGE

This daily chart was not flashing any particular BUY signal ie. this was not an attempt to perform some miracle timing. Indeed, I would not be surprised if prices continue lower for a bit longer. Obviously, I am not concerned.

The daily chart does show a couple of new indicators I have coded for ThinkorSwim. Wm. Blau invented the True Strength Index indicator (TSI) and he also invented other lesser known indicators, such as the two seen here - Directional Movement Index and Trend Direction Index indicators.

The following weekly chart of CGR did provide me with a considerable smattering of favorable BUY signal technical considerations. I was most impressed with the positive divergence BUY signal on the TSI(7,4) but also noted that the Money Flow Index (10) was hovering at the 50 level - despite a slew of red weekly candles in the volume indicator. 

And heaven forbid we talk about fundamentals! This market is built on fear and emotional nonsense - have I forgotten?  Ha ha. Claude Resources earnings are projected to QUADRUPLE in the next two years. And it is presently selling at just 37% of its book value. Give me a break. I'll buy and just sit. Fine with me. 

Finally, in 2008 I do recall a couple of 'let's trade some miners' experiences that I made a good deal of money on. One was this obscure stock called Orezone. I discovered that of all the legitimate miners, it was selling at 10% of book value. I kid you not. I watched it and studied it for days, maybe even a week or two. Then I loaded up at 11 cents per share. 

For a couple of weeks it bounced back and forth between 11 and 15 cents. Then one morning I woke up and looked at the price. I could not believe my eyes.

It said 44 cents. Long story short, another company just bought my stock in the blink of an eye and I made 300% the easiest way possible.

Soon enough, with current prices stupid cheap, we will begin to hear of acquisitions.....bigger miners buying smaller miners.

Another one I had fun playing with was Coeur d'Alene (CDE). It must have had some kind of split or something since 2008 because my chart says it bottomed at $3.60. But that's not the price I remember trading it. I remember buying and selling it over and over again in something like the 30 - 60 cent range. That kind of price movement every few days made for easy trading. At some point now, as we get to a bottom, no doubt the same conditions will appear. Let's keep an eye out for it, OK?

HUI: Earnings 2004 - 2013 and Today's Emotional Nonsense

Watching the HUI Gold Bugs Index of late brings to mind the saying, "if it wasn't so funny, I'd cry" or perhaps the opposite is better, "if it wasn't so sad, I'd laugh". 

Either saying kinda has it correct as what we are witnessing right now is extremely emotional and irrational price behavior. This kind of nonsense kinda makes me chuckle because I view it as entirely a spoof, but admittedly the drama does make me sad as I know this experience is very painful for some people.

All along I have resolved, without wavering one iota, to hold my under water mining positions for however long is required to sell each and every one at a profit. A nice generous profit is what I have in mind.

But at a time such as now, I suppose that sounds pretty naive, right? I mean, everyone knows the sky is falling so what is my problem? And you know what, that's a very fair question. After all, no one loses their shirt and still smiles about it. That just tells you there is something not working upstairs in the guy's pee-brain. 

I'll spare you a recitation of my 2008 experience. If you have not read it and are curious, just click on the link and see what you think.

This post is going to take a different tack. I'd like to show you the earnings of the individual mining companies that make up the HUI Gold Bugs Index. And to put it in some decent perspective I worked real hard to get the annual earnings for all 16 companies from 2004 right on up to the estimated earnings for each company in 2013.

What I think you will quickly see is that this take down of the HUI Gold Bugs Index is complete emotional nonsense. Yes, I agree it is not nonsense when one looks at their account value. That is real. I know. But I'd like for you to know that it is temporary and this post will aim to show you why.

HUI Gold Bugs Index                                                                                    2004 – 2013E
		Symbol	HUI%	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013
1	Goldcorp Inc	GG	16.20%	0.27	0.83	1	0.62	0.56	0.8	1.37	2.22	2.03	2.16
2	Barrick Gold Corp	ABX	15.36%	0.18	0.57	1.84	1.77	1.84	2	3.32	4.67	3.82	4.46
3	Newmont Mining	NEM	10.88%	1.17	0.91	1.65	1.42	1.99	2.79	3.85	4.39	3.58	4.37
4	Harmony Gold (ADR)	HMY	5.21%	-	-	-	--	-0.62	7.07	-0.46	1.43	0.64	0.98
5	Coeur d'Alene Mines Corp	CDE	5.11%	-0.03	0.04	0.27	0.14	0	0.11	0.54	1.37	0.34	1.99
6	Yamana Gold Inc	AUY	5.00%	0.04	0.01	0.1	0.61	0.45	0.47	0.61	0.96	0.93	1.21
7	AngloGold Ashanti Ltd	AU	4.88%	0.83	0.76	1.77	0.99	-2.15	-0.14	2.12	3.36	2.99	4.52
8	Gold Fields Ltd (ADR)	GFI	4.80%	-	-	-		0.5	0.63	0.22	1.33	1.15	1.57
9	Randgold Resources (ADR)	GOLD	4.71%	0.19	0.6	0.69		1.09	0.82	1.14	4.07	4.64	5.73
10	Iamgold Corp	IAG	4.43%	0.05	0.14	0.39	0.19	0.36	0.5	0.76	1.08	0.89	0.97
11	ElDorado Gold Corp	EGO	4.34%	-0.03	-0.12	0.01	0.1	0.46	0.26	0.38	0.58	0.46	0.59
12	Hecla Mining Co.	HL	4.14%	0.01	-0.22	0.14	0.31	-0.07	0.13	0.31	0.44	0.13	0.39
13	Buenaventura (ADR)	BVN	4.08%	1.58	2.34	3.33	1.29	1.67	2.33	2.61	3.39	3.07	3.21
14	New Gold Inc (CN)	NGD	3.90%	-	-	-	-2	0.01	0.11	0.24	0.44	0.42	0.71
15	Kinross Gold Corp	KGC	3.85%	0.15	-0.63	0.46	0.32	0.4	0.44	0.58	0.77	0.77	0.86
16	Agnico_Eagle Mines Ltd	AEM	3.11%	0.56	0.45	1.13	1.13	0.35	0.69	1.77	1.97	2.17	2.17
			100.00	4.97	5.68	12.78	6.89	6.84	19.01	19.36	32.47	28.03	35.89
divided by # stocks				13	13	13	13	16	16	16	16	16	16
Avg. Earnings per Stock				0.38	0.44	0.98	0.53	0.43	1.19	1.21	2.03	1.75	2.24

The table above lists the 16 companies that currently make up the HUI Gold Bugs Index and lists the percentage that each is weighted as a member of the index.

Three of the sixteen miners were tough to get earnings data in the 2004 - 2007 time window. I did the best I could (quickly) and provided a light green background that averaged the earnings during those years with 13, rather than the preferably complete 16 data sets.

The cumulative earnings for each year is shaded with a dark green background.

The data regarding 2013E (estimated) earnings came from today's latest Kitco data published by Bill Matlack. 

Anyway, what I see in the chart is not a single miner is projected to have lower earnings in 2013. 

Imagine that.

If anything, the 2013 projections suggests miners will make more money this year than in any year in the past.

And heck, we can go into all that stuff about what percent of projected earnings come true and what percent do not come true. And then we could argue that somehow this may well invalidate my conclusion. 

So let me say that I have indeed seen a percentage of miner's earnings projections that did not come true. But my observation, having just looked at that question with all this data, is that it is not as significant as one may think. Certainly it is not significant to spoil the strong earnings projected for 2013 in light of the earnings of the past two years.

Anyway, I believe what we are seeing today is emotional nonsense. If these companies were impaired to the extent that this current hair cut is justified, that would be one thing. But I don't see any evidence of earnings impairment. Do you?

One chart for the conclusion of this post. Let's look at /GC - gold futures on the daily chart. The most interesting extreme on this chart is the reading on the custom money flow indicator I created. It is the top of two indicators and reading so low that I could only find about 2 other occasions that it was similar (-50+). You know, at some point the selling just gets exhausted, the negative money flow dries up, and then you know what happens, right?

Click on the chart to ENLARGE

The lower indicator is kinda interesting and another kitchen soup concoction of mine. What I have done is told the computer to consider the True Strength Index indicator for each of the 16 miners comprising the HUI index. But more specifically, the computer is told to weight the TSI (7,4) reading for each stock by whether it is rising or falling and whether it is above or below ZERO. I'm still working on getting the weighting just right but for now, suffice it to say that when the indicator is bright maroon a whole lot of the component stocks' TSI readings are falling below ZERO, and when it is blue a whole lot of the component stocks TSI readings are rising above ZERO. Right now it's not looking too hot, but that will change.

It always does.