Another Day, Another Profitable Decline in Junior Miners

Declines in the miners continue… So far it is slowly, but this could change very soon. Here’s why.

In my Monday’s analysis, I wrote about two tipping points. One of them was S&P 500 index’s futures (!) move to 5,000. I wrote the following:

The S&P 500 Index futures approached the 5,000 level. Friday’s intraday high was 4997.75, after reaching which the futures retraced. They are slightly lower today.

I wrote on many occasions that round numbers are important from the psychological point of view, and there’s little doubt that 5,000 carries a significant weight in that regard. This level is super-important as resistance, but also as something that people can gravitate to.

“The S&P will rally to 5,000!” likely became a self-fulfilling prophecy, as people were buying all the way up to 5,000, actually causing the move that they had been foreseeing.

No fundamental trigger is necessary for that. In fact, this kind of emotional rally can happen against fundamental signs, like less dovish than expected signals from the Fed.

As the S&P 500 futures attempted to move to / above 5,000 and they moved back down, whatever was likely to happen based on the emotional upswing has probably already happened. It’s quite likely that the S&P futures’ move to 5,000 was the tipping point.

The S&P 500 Index futures were a bit higher than the index itself, which topped at 4,975.29, but that’s also very close to 5,000. This have been enough to trigger the final reversal, or it might be the case that we’ll see index’s move to 5,000 before it reverses. This would imply a move slightly above 5,000 in index futures, which could then invalidate this breakdown and both: index and futures based on it would fall – taking many other sectors with it. In particular, junior mining stocks.

Indeed, that’s exactly what we saw yesterday – the index itself moved to 5,000 yesterday, while the futures moved a bit above this level.

Another Day, Another Profitable Decline in Junior Miners - Image 1

Yesterday’s high was 4999.89 – that’s close enough to view the 5,000 as one that’s been just tested. The S&P 500 index is pretty much flat at today’s open, so the great test continues.

Will the S&P 500 be able to break and confirm its breakout above 5,000? With RSI above 70, after a big short-term uptrend and given (still) high interest rates… I doubt it.

The most important thing, however, is what I already wrote yesterday:

  • If stocks rally, junior miners are likely to decline anyway.
  • If stocks fall, junior miners are likely to decline significantly.
  • If stocks fall hard, junior miners are likely to decline on steroids.

The great part about the opportunity in junior miners is that it appears very resistance to pretty much anything. If anything happens that “should” make junior miners rally, they rally just a little or they rally just temporarily. If something happens that “should” make miners decline, miners decline decisively. Over time it lead to continuous downtrend – so far – but when the stocks market falls and gold falls as well (and both appears to be just around the corner), then junior miners are likely to truly plunge.

Another Day, Another Profitable Decline in Junior Miners - Image 2

Meanwhile, gold is down today, and so are junior miners. At the moment of writing these words, the GDXJ ETF is trading just $0.17 above its 2024 low and it could be the case that this low is broken today.

If not, it’s likely to be broken shortly, anyway, due to its medium-term downtrend and extreme underperformance of gold.

And let’s not forget about the triggers that could push miners lower FAST. One might come from the stock market which could slide any day or hour now. The other comes from the USD Index, which continues to move higher after bottoming at the turn of the year.

Another Day, Another Profitable Decline in Junior Miners - Image 3

Since the USD Index is after a consolidation, it’s ready to move higher.

In other words, our profits from the short position in junior miners are increasing and they are likely to increase more soon. The opportunity to switch to a long position is not far, but it’s not here just yet. As always, I’ll keep my subscribers informed.

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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief