Junior Miners Decline the Most – Again

Once again, very little happened on the precious metals market and in the USD Index yesterday.

Therefore, since I just wrote about the implications yesterday, I have very little news to report to you today. In short, the situation remains bearish, and the profits from our already profitable short positions are likely to increase soon.

Junior Miners Decline the Most – Again - Image 1

The GDXJ moved a little higher, but it ended visibly below the rising resistance line, which means that the bearish implications of the breakdown below it remain intact.

Moreover, please note that the volume on which the junior miners moved higher yesterday was tiny. In other words, the volume doesn’t confirm this direction, and the rally looked more like a breather. This perfectly fits my yesterday’s comments.

Junior Miners Decline the Most – Again - Image 2

Zooming in shows that the GDXJ moved sharply higher at first, and then it declined during the day. You can literally see how bulls failed to ignite a real rally.

Junior Miners Decline the Most – Again - Image 3

Just like the miners, gold price moved slightly higher, but it didn’t close above the resistance line. This means that nothing has changed, and the implications are bearish.

Also, do you remember when I wrote about the GDXJ to GDX ratio and its bearish implications?

Junior Miners Decline the Most – Again - Image 4

When the RSI indicator based on this ratio moved above 70, I wrote that this was actually a great sell signal. I emphasized that when we previously saw those sell signals, oftentimes gold or the stock market topped. Sometimes both. I argued that it was quite likely for both to be topping at that time.

That’s exactly what happened. Gold and stocks both moved lower, and the same happened with mining stocks. And as the ratio declined as well, junior miners declined more than senior miners. The GDXJ (juniors) declined by 4.5% so far this month, while the GDX (seniors) declined by 1.67%. In other words, the GDXJ was a great selection of an instrument to short. And yes, the declines appear to have only started.

What does it all mean? It means that the precious metals market is likely to slide, quite likely profoundly so, and junior mining stocks’ prices are likely to truly slide. While I can’t promise any specific rate of return, it seems to me that the profits on this decline are going to become astronomical.

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