We saw a powerful breakdown yesterday. Breakdowns tend to get verified. We see that today.
And that, my friends, is pretty much the summary of what we see on the mining stock chart right now.
The breakdown below the rising wedge pattern is a fact. Even though the GDXJ reversed back to its lower border, it closed lower, and today’s move above $100, is also likely to fail.
Did yesterday’s move back up in the second half of the session made the outlook bullish?
No. The reversal took place on a huge volume and overall, it still formed a reversal candlestick (so called ‘hanging man’ candlestick) – the volume is a factor here, as it confirms reversal’s importance.
Zooming in reveals that the GDXJ moved back to the lower border of the wedge pattern without breaking above it. The breakdown is simply being verified right now.
Silver’s outperforming again, suggesting that this might indeed be the top. The same goes for platinum – it’s also very strong today, which could indicate the same thing. When small markets rally relative to the big ones, it suggests that individual buyers dominate the market, not big, institutional investors – the latter couldn’t really enter those smaller markets. And it is the individual investor that tends to get in close to rally’s end.
Will silver soar to $50 before declining? That’s still possible, and some might view this as shorting opportunity. I’ll most likely wait for the first huge drop in silver before stating that the outlook for it is really bearish. As the white metal is so close to its all-time highs, we need to consider the possibility that it could break out and verify this breakout. And if it does, then sky’s the limit. Silver as a superb fundamental situation and I expect it to perform exceptionally well after the upcoming medium-term decline. But if I’m wrong and silver does indeed break out and it confirms this breakout, we might need to go long silver even without waiting for the medium-term decline. For now, this is improbable.
What I view as much more likely is the scenario, in which silver declines one final time, creating the handle of the long-term cup-and-handle pattern that prepares it for take-off.
That ‘handle’ is likely to be significant – if stocks decline – and that’s highly likely, the decline could be significant just as the 2008 slide was. Seems unlikely? It seemed unlikely in 2008 as well.
As always, I’ll keep my subscribers informed.
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Thank you.
Przemyslaw K. Radomski, CFA
Founder
Golden Meadow®