Sequential sell for crude oil, and bullish outlook for gold shares

In his March 15th Howe Street broadcast, Bob Hoye from ChartsandMarkets.com reports that his firm issued a sequential sell on crude oil Friday. This follows a sequential sell they issued in late February for the S&P 500. The index subsequently fell about 2% within two weeks before rebounding which Hoye says was accompanied by some short-term term trading buy signals.

US OIl Fund ETF (Click for larger)

At this point, Hoye still believes there will be a stock market correction, but it is uncertain how far it will go.

Mother nature and the stock market has blessed us with another opportunity to build some liquidity, to take a little money off the table.

Interestingly, it sounds like he has not completely ruled out either new lows or a new bull market.

You cannot tell whether it is a new bull market coming out of the hit into Christmas. The only way to determine that is if you get to new highs.

On the economy, he notes that Turkey is now in a recession, China's economy is slowing, and falling LIBOR suggests the boom in London and Europe is over. In terms of the United States, he is concerned about the yield curve:

The yield curve flattened briefly with the rally out of Christmas, but if you take the 5-year to 30-year curve, it is quietly steepening which is a sign of a potential contraction.

Getting back to crude, Hoye suggests it was oversold at Christmas and has had a nice rally that is now excessive. If it moves lower, Hoye believes it will start to widen credit spreads which would be bad news for stocks:

Crude oil correcting here is not going to kind to the markets.

In terms of gold, he does not see a big move against the US dollar, but remains bullish on the gold group, on the assumption that during a contraction the real price of gold should go up which boosts operating margins for mining and valuations for mineral deposits. He explains:

It has been very reliable, the few years after a bubble top then into the post-bubble contraction the real price of gold has gone up and then you have had some very strong rallies for the gold stocks.

He suggests that a strong rally in gold stocks is ahead of us, but the entry point is always difficult. After the recent rally, he believes it is time to take some money off the table. Nevertheless, the bigger picture looks promising for the group.

Essentially, we are in the early stages of what will likely become a terrific cyclical bull market for the gold stocks and the silver stocks.

For junior miners, right now the winners will need at least two key ingredients:

We are in the kind of market where the smaller companies have to have some pretty good promoters and a pretty good story to make them go.

Eventually, he suggests we will be in situation where everything is going up for a few years. "A long bull market is ahead of us", says Hoye about the gold group.

This post first appeared on INKResearch.com. Listen to the interview here on YouTube or below where you can also download it.