Tuesday, September 14, 2010

Fun with Charts: How Do You Tell the Difference Between a Miner and an Owner?

So much serious debate about whether the market is about to break through resistance and head higher or reject back down, I thought it was time for a little levity.

Why Did the Chicken Cross the Road?

A chartist's take on a joke can be quite funny. Take it from me. Days like today, with a large trend move in metals, make it easy to see through the marketing spin about whether a company predominantly owns metal reserves or is predominantly getting those metals out of the ground, despite what their website or Yahoo Finance says. So here goes..

Q: How Do You Tell the Difference Between a Miner and an Owner?

Here is the chart for iShares Silver Trust, SLV

iShares Silver Trust, SLV
Notice today's candle. It has a very small shadow, mimicking the candle in both the Gold and Silver commodity charts.

I have put the silver chart here for comparison.

Silver Futures - Continuous Contract

This is the one end of the spectrum. Other stocks like this include GLD, BAA, CEF, and GOLD.

Now look at Market Vectors Gold Miners ETF, GDX.

Market Vectors Gold Miners ETF, GDX
Notice that this chart shows a much longer shadow, indicating that the price action rose in tandem with the commodity price but then retreated a bit because it is not a pure play. You could probably line up all the candles from the miners and get a good estimate of just how 'pure' their business is. Others in this category include ABX, EGO, GG, HL, IVN, NEM, RBY, SLW and SWC.

A: Look at the Candles of the Stocks During Large Commodity Moves

Ha, ha, ha, ha. Gets me every time. So the next time you are at a bar or cocktail party with people who do things other than trade the markets, bring out this little joke to break the ice. You are sure to be able to enjoy your drink alone or get home early. Trade well tomorrow!

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