It’s Not Necessarily All About Gold Price…
Boring day for precious metals, but brace yourself for some major stocks action!
I’ll be honest – there’s not much going on today, at least for the precious metals market. Things are pretty interesting for stocks, though…
After Thursday’s supposedly bullish short-term reversal, there was a bearish short-term reversal on Friday, and gold futures are down in today’s pre-market trading, but not significantly so.
In other words, the post-breakdown back-and-forth movement continues. And it continues to have the same bearish implications as it used to. The markets are preparing for their next big move, and it’s extremely likely that this move is going to be to the downside.
Gold practically ignored last week’s sizable decline in the USD Index, which tells us that there’s probably nothing or very little that could make it rally from here (I’m talking about “regular” events, of course). On the other hand, given this kind of relative performance, it seems that once gold gets at least some trigger (can come from any semi-important piece of news or the USD Index’s upswing), it would be ready to slide.
For now, it’s still in the preparation mode, which makes it likely that once the decline is going to finally start, it’s going to be really significant.
What we saw in the S&P 500 on Friday is more interesting.
Namely, we saw a reversal that took place on a huge volume.
One might say that it’s not a big deal, or it’s something bullish because we saw something like that in late May, and it was right before the upswing.
However, this time, we saw the volume spike also in the Nasdaq, which we didn’t see in late May, so this time really IS different.
Could it be that stocks finally reached their peak?
Honestly, even I’m tired of writing that this is likely, but… It DOES appear to be likely.
The RSI is still at extremely oversold levels, and the index itself just reached its rising resistance line, which you can see on the chart below.
It does look like it’s high time for a turnaround. This has been the case a couple of times now, but never did we see a combination of huge volume, a resistance level being reached, a daily reversal, and an extremely overbought RSI.
Also, do you remember (I wrote about it on many occasions) what tends to happen at the end of an upswing in the stock market? The stocks that were weakest previously tend to outperform.
The reason is that the investment public buys whatever’s cheap without considering that it might be cheap for a reason. Sometimes the moves are bigger, and sometimes they are smaller, like the one that we just saw in the GDXJ.
The GDXJ moved higher on an intraday basis on Friday, but ended the session very close to its rising red support line. Was the breakdown invalidated? I wouldn’t say so, especially given today’s pre-market decline in gold.
Did juniors had some reason to move higher on Friday, even though gold didn’t? Yes, it could have been because stocks were topping.
Was Friday’s move higher a sign of strength in the precious metals sector? No, because of the above reason and because it was just one day. Considering where the GDXJ is relative to its June lows and highs and then comparing it to where the gold price is compared to its own June lows and highs tells us that miners remain weak relative to gold. And that’s bearish.
All in all, the outlook for the precious metals sector remains bearish, and it seems that the patience (which has been very difficult) will be well rewarded for those positioned to take advantage of the next big move to the downside (and those prepared to take advantage of the upcoming rebound).
PS. To clarify some confusion and misleading information that you might find “out there” (probably spread by those that are not analyzing the precious metals market but that rather cheerleading it) regarding my profitability and the kind of positions that I’m opening in my Gold Trading Alerts (both: long and short), here’s a complete (!) list of trades that I featured since 2022.
“A trade” means that it was completed, I am not featuring the currently open positions (we have two: in GDXJ and FCX), but details of those positions are available to Gold Trading Alert subscribers.
Whenever discussing profits, I mean the nominal profits based on the basic, unleveraged instrument, like GDXJ and FCX); selection of instruments is not something I’m accountable for, and each investor determines it on their own, thus I’m not responsible for using options, leveraged instruments like futures / leveraged ETFs etc., and the way it might affect the rate of return.
Yes, all eight out of eight were profitable. And while I can’t promise any kind of performance of the current positions (nor any other), in my opinion, their potential is enormous.
Here’s the complete (!) list in inverse chronological order (please click the links for the actual analyses in which I described when the profits were taken; feel free to verify hours at which it was posted and where markets were trading at those times):
1. On May 25, 2023 we took profits from the short position in the FCX (practically right at the bottom; opened on Apr. 5, 2023).
2. On Mar. 17, 2023 we took profits from the short position in the FCX (almost right at the bottom; opened on Mar. 8, 2023).
3. On Mar. 1, 2023 we took profits from the LONG position in the GDXJ (very close to the local bottom; after the “easy part” of the rally).
4. On Feb. 24, 2023 we took profits from the short position in the GDXJ (almost right at the bottom; and that’s where I wrote about the long position from point 3).
5. On Jul. 28, 2022 we took profits from the LONG position in the GDXJ (entered on Jul. 11, 2022; we were buying around and very close to the bottom).
6. On Jul. 8, 2022 we took profits from the short position in the GDXJ (very close to the bottom).
7. On May 26, 2022 we took profits from the LONG position in the GDXJ (very close to the top; just several days before the top).
8. On May 12, 2022 we took profits from the short position in the GDXJ (that was exactly the monthly low and reversal; and that’s where I wrote about the long position from point 7).
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Przemyslaw K. Radomski, CFA