Beautiful, Useful Correction in Junior Miners
The S&P 500 futures soar to 5,000 once again, and yet, miners are flat. What a great opportunity!
The GLD ETF (upper part of the chart) is up today. The same goes for the SPY ETF (a proxy for the general stock market) is up and testing its all-time highs, and yet, the GDXJ (lower part of the chart), a proxy for junior mining stocks is slightly down. If that’s not another example of extreme underperformance, then I don’t know what could be one.
It’s also clearly visible when we look at how big this quick rebound is compared to the February decline. In the case of gold, it’s over 50%. In the case of the GDXJ, it’s not even 38.2% percent.
So, yes, today’s performance is another clear SELL sign. That’s exactly how gold and miners performed in 2012 and early 2013 before their huge sell-off.
In particular, please take a look at the area marked with orange – between March and October 2012. Stocks (middle of the chart) moved higher, gold (upper part of the chart) moved pretty much to its previous highs, and yet, the GDXJ (bottom part of the chart) was considerably lower.
That’s exactly the kind of performance that we see right now on both medium- and short-term basis.
The implications are very bearish.
Oh, and also, please note that rallying stocks were not (!) able to save miners in 2012 and 2013, and they were not able to save them so far this year. Therefore, even IF stocks were to rally from here, junior miners would STILL be likely to fall. This creates a great opportunity.
The emphasis regarding stocks goes on IF. Right now (at the moment of writing these words), the S&P 500 index futures contract is testing its all-important high of 5,000. Some commodities, like crude oil moved higher too (and Anna was right to take profits yesterday), but that seems connected also to the slight dip in the value of the USD Index, which I’m going to briefly discuss shortly.
Anyway, the intraday patterns are just like what we saw close to the mid-2023 top (marked with arrows), so it’s quite likely that instead of a breakout, we’ll see a slide.
But the key part is this:
- 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 led to a 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.
Meanwhile, the USD Index is taking a breather after a rally that followed the consolidation. A breather at this point is completely normal, and it’s not a sign of a top. This means that the move higher in gold is also likely just a breather and another move lower is about to follow.
Moving back to the junior miners, analyzing the early parts of the big short-term declines reveals that the kind of small rebound that we see this week is completely normal. I marked the previous similar cases with red arrows and just like those previous rallies didn’t change anything, the current one most likely doesn’t change anything, either. The move lower is likely to continue shortly.
Congratulations on your current profits and remember that the best is yet to come.
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Przemyslaw K. Radomski, CFA