Breakdowns, Breakouts, and Their Profitable Implications

Miners slide to new monthly lows – just as we expected. Will this move continue? The USD Index has something to say about it…

Verifications – I wrote quite a lot about them recently, and thus yesterday’s slide to new monthly lows in the GDXJ didn’t surprise you. Conversely, you probably profited from it.

Breakdowns, Breakouts, and Their Profitable Implications - Image 1

The back-and-forth trading that we saw recently was followed by the same kind of action that followed the previous ones – a decline. And since the history definitely appears to be rhyming, the next verse is also likely to be similar. This means another move lower in the short term.

Now, the importance of verifications extends to other markets as well, including the USD Index.

Breakdowns, Breakouts, and Their Profitable Implications - Image 2

In mid-May, the U.S. dollar broke above its declining resistance line, and it’s been consolidating since that time. The breakout was not invalidated, and it’s now more than confirmed, as the USDX remained above this line for over a month.

You just saw what happened after a verification of a breakdown in the GDXJ – it moved lower once again.

Based on the same principle, the USD Index is likely to move higher in the following weeks, thus contributing to lower precious metals prices.

The very interesting thing about the USD Index right now is that we see the same kind of pattern in the near term.

Breakdowns, Breakouts, and Their Profitable Implications - Image 3

The above chart is based on 4-hour candlesticks, and it zooms into the June decline as well as the most recent rally, along with its correction.

Just like it was the case with the medium-term moves, we saw a double-bottom with the very recent performance o the USDX. In the past, it was the February and April/May bottoms that created the bottoms, and this time it’s this month’s bottoms.

Based on today’s pre-market rally, it seems that the corrective downswing might already be over.

If this is the case and we do indeed see a rally shortly, it’s very likely that we’re about to see the start of another medium-term rally soon. And more precisely, its continuation, as it seems to have started last week.

This would be in full alignment with the patterns in the euro.

Breakdowns, Breakouts, and Their Profitable Implications - Image 4

The double tops in the RSI are followed by another small upswing in the euro itself, and that’s how big declines start.

That worked in 2008, in 2018, and in 2021. The big move lower in the euro, higher in the USD Index, and lower in the precious metals sector is very likely just around the corner.

Besides, yesterday’s performance of mining stocks, that happened in tune with my previous expectations, is already showing where the PMs want to go – after all, miners tend to lead the metals. And at this time, it’s obvious that they are leading them lower.

All in all, the precious metals sector just provided us with a bearish confirmation for the near term, and it’s likely to decline soon. However, we might see a short-term buying opportunity very soon – similar to the ones that we took advantage of in May and in July last year. Naturally, I will keep my Gold Trading Alert subscribers informed about this great opportunity.

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