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WEAK CASH FLOW PRECEEDS PRICE DECLINES IN PRECIOUS METALS STOCKS

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When there is weak cash flow into Rydex Precious Metals Fund it is a fairly reliable warning to expect price weakness in the short-term, and sometimes the corrections can be quite severe.

As a general rule we expect cash flow to more or less follow prices -- when prices are going up, cash flow should also be moving up proportionately -- however, when prices rise and cash flow suddenly dries up, it tells us that the sector is losing support. Higher prices are failing to attract more money.

On the chart we can see four negative divergences between cash flow and price. In the first three instances they resulted in price declines. The current divergence seems to be playing out as expected and a correction in precious metals stocks has begun.

Chip Anderson
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