In short, in my opinion, increasing the size of the current short position in the GDXJ is now justified from the risk to reward point of view.
We recently moved from the really big size of the position to a small size thereof (from 300% of the regular position size to 50% of the regular position size) and in my opinion getting back to the previous size (300% of the regular position size) is a good idea.
As I wrote earlier today, gold was quite likely to reach its two resistance lines and that’s exactly what just happened. In fact, gold is at this particular price level ($1,966) as I’m writing these words.
And while gold price moved to a new short-term high, the GDXJ moved close to its previous high, but it didn’t even manage to reach it. Instead, junior miners moved to their declining resistance line and stopped their rally there. This relative weakness of miners is yet another sign pointing to lower prices in the following days and weeks.
Consequently, I think that increasing the size of the short position at this time is justified from the risk to reward perspective.
We had limited the size of the position at lower prices, and we are increasing it at higher prices, which means that we are re-entering most of the position at higher prices, which in turn means that we increased the likely profitability of this position. Congratulations!
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Thank you.
Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief