Since the height of the stock panic in late November, commodity stocks have probably been the best-performing sector.  While general stocks slumped to lower lows in early March, commodity stocks surged.  Their bullish fundamentals drove 50% to 100%+ gains over the S&P 500’s exact low-to-low span!

But this newfound commodity-stock enthusiasm has yet to permeate one key sub-sector – the gold stocks.  Traditional gold stock traders, after riding a massive 1331% bull market between November 2000 and March 2008, were hit exceptionally hard by the stock panic.  Many investors’ wills were totally broken and they will never come back to gold stocks.  The panic was the ultimate test of everyone’s financial mettle.

While it is sad to lose the long-time investors, the markets march on and opportunities are great.  Let the dead bury the dead.  It is encouraging to see the ranks of first-time gold-stock investors and speculators growing, but this new constituency has to replace many fallen traditional traders.  Meanwhile, outside of the fallen and the rookies, the majority of gold stock traders wait on the sidelines.

They are too worried to commit capital.  Despite fiat-currency inflation at unprecedented levels, they fear gold’s next big move will be down.  And gold stocks always ultimately follow gold.  They watch the flagship HUI gold-stock index’s action daily, and worry it is not behaving quite right.  The proverbial wall of worries all bull markets must climb is alive and well in the gold stock world.

I agree there are certainly days where the HUI’s behavior ranges from uninspiring to discouraging.  Yet one of the keys to thriving in the markets is not weighing any single day too heavily.  Far more important is the trend, the sum of many days’ action.  Traders mired in day-to-day randomness risk losing perspective, which is absolutely necessary in order to successfully ride any trend to big realized profits.

After analyzing the HUI’s trends this week, I was so impressed that I decided to update this bullish HUI technicals thread of research.  It has been just over 2 years I last weighed in on the HUI technicals.  Then, the HUI was languishing in the low-to-mid 300s, much like today.  And sentiment was pretty poor and apathetic, just like today.  Yet out of those subtly bullish HUI technicals, this index soon powered 50% higher in a nice up leg.

This first chart offers crucial perspective on the HUI’s technical performance since the stock panic.  Since gold is the gold stocks’ primary driver, I added it in the background for reference.  Taken as a whole and not overweighting those inevitable discouraging days in any trend, the HUI’s behavior has really been quite impressive.  It is climbing on balance over a chaotic period where most general stocks struggled.

This is an excerpt from May 2009 issue of Trader's Journal.