Palisade Research - Wed, Jun 28, 2017

Major Breakout In Gold Stocks About To Occur

photo of a golden bull breaking through a newspaper's financial page

Investors looking to position themselves in the initial stages of major price fluctuations and increases in volatility use breakout trading.

A breakout occurs when the price of a share finally breaks through a technical support or resistance level. Once the breakout occurs, volatility increases and the share price will continue its breakout movement.

In technical trading, the most explosive movements are succeeded by channel breakouts and price pattern breakouts. During this period, volatility contracts, before expanding.

Looking at the HUI, we are without a doubt seeing the formation of a triangle price pattern, a pattern that depicts a price range getting narrower because of higher bottoms and lower tops:

January 2015 to June 2017 $HUI line chart showing prices are now in a triangle pattern for the NYSE Arca Gold Bugs Index

Active traders will see this as bullish if they believe the breakout will occur on the resistance, or bearish if it breaks through the support.

The HUI's volatility has contracted significantly, another indicator that a breakout is just around the corner:

January 2015 to May 2017 line chart showing $HUI prices and very low volatility which may indicate a major move is coming soon

With trading becoming more range bound, and volatility almost at a historical low, this is the calm before the storm.

Which way are you stacking your chips?

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