Another Extra Profit Opportunity
In yesterday’s analysis, I wrote about how the time aspect supports the ongoing similarity to 2008, and in light of yesterday’s upswing… nothing changed.
In fact, if we look at the HUI Index’s long-term chart, we’ll see that miners are doing exactly what they had been doing in 2008, during the USD Index’s bottom.
Let’s start with the latter. I already wrote about the situation in the U.S. currency, but it’s worth emphasizing it one more time as the implications for the precious metals sector remain in place.
The sharp short-term decline after a sharp-short-term rally was typical before two of gold’s key tops. The final 2008 top and the 2011 top.
This is particularly important given all the other links to 2008.
Back then, the final bottom in the USDX was a bit (but not much) above the initial bottom. Well, guess what’s happening right now.
On a medium-term basis, the USD Index just moved very close to its 2023 low while remaining slightly above it.
This is as close to 2008 as it gets.
Let’s keep in mind that we’re just after two trading days of April, and the USD Index tends to reverse its course close to the turn of the month – or right at it. This means that we’re likely to see a turnaround any day – or hour – now.
This, in turn, means that the USDX is likely to rally at least somewhat. Based on the 2008 analogy, though, it’s likely to be much more than just “somewhat.” It seems more likely that we’re about to see a truly powerful move to the upside – perhaps similarly big to what we saw in 2008.
Speaking of 2008 and the moment when we saw the final bottom in the USDX, let’s see what happened in gold stocks at that time.
Well, as the USDX was bottoming, the HUI Index – proxy for gold stocks – was moving higher – quite visibly so. However, it’s important to note what accompanied this final pre-slide upswing in the HUI Index in the case of the indicators.
In particular, the stochastic indicator in the lower part of the above chart seems to be flashing a major “IT’S TIME” sign.
This time, the volatility is even bigger (which is not that odd given that more money is floating around this time), but we can see that the indicator is behaving very similarly.
After bottoming below 20, we saw a sharp upswing in stochastic. And it was this upswing that marked the last moment to enter short positions (and/or exit long ones) before the slide took gold stocks much lower. Is this THE TIME right now? I can’t make any guarantees (regarding outlook or performance), of course, and I’m not making one right now. However, in my opinion, it’s highly likely that we are in the same situation right now.
The sentiment is ridiculously positive, and it was just as positive back in 2008. Pretty much nobody was expecting what arrived next – the carnage.
Sure, gold moved higher today – above the initial high.
The RSI also moved above 69, and we saw a slight bump in volume levels – just like we saw it last year in early April – and that was what started a huge short-term decline back then.
What is different now is that gold has reached new highs.
But… since gold is also repeating its 2008 performance, that’s normal.
The final top in gold happened only after gold moved above the previous highs.
Also, let me remind you that this is yet another attempt to move above $2,000 and one that happened on strong monthly volume.
All three previous attempts that were accompanied by a similarly big volume failed. Sometimes they failed immediately, and sometimes there was an attempt to move higher in the following months, but they all failed.
This is likely where we are right now.
Given what just happened in the USD Index and the HUI Index, and given USDX’s tendency to reverse close to the turn of the month, it seems likely that the top is in or at hand.
I already wrote about the GDXJ’s extremely bearish indication from its RSI indicator in yesterday’s intraday Gold Trading Alert, and here’s a graphical representation of what I wrote.
Quoting yesterday’s intraday Alert:
The GDXJ ETF moved higher today (as gold and silver did), and as a result, the RSI based on it moved above 70.
In the recent years, it was almost always the case (and has been the case since 2021) that when the GDXJ’s RSI moved above 70, a major top formed and the GDXJ was about to slide.
Meanwhile, the USD Index moved lower, and it’s now just a bit above its previous yearly low. Based on the analogy to 2008 (and also 2011), it seems that the bottom is in or that it’s so close that any potential downside here is likely negligible.
Consequently, the odds are that the junior miners are topping here. Even though one might “feel” that this is the time to drop the towel, and maybe even go long, the history shows that exactly the opposite is justified from the risk to reward point of view. If I didn’t have a short position in junior mining stocks right now, I would be opening one right now.
The above simply remains up-to-date.
On the above hourly GDXJ chart, we see that it moved slightly above its previous 2023 high, and we see a small move above the rising wedge pattern.
Both moves were not confirmed yet, and given the situation in the USD Index, the HUI Index, and gold, it seems likely that those breakouts won’t be confirmed. And once they are invalidated, they will be a very strong sell signal for the short term.
The lines creating the rising wedge will cross approximately on April 10 – next Monday. Since there is no trading in the U.S. this Friday, we have only two full sessions left (including today). Consequently, it could be the case that we see some sideways movement or a move lower and then a final attempt to move higher on Monday, only to see a massive failure and the start of a truly powerful decline at that time.
Patience here is likely to be extremely well rewarded.
Just as the night is darkest before the dawn, it “seems most bullish” right before the biggest slides.
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Przemyslaw K. Radomski, CFA