Miners Show the Way – Not Only for Gold
Miners just plunged, and they did right after tricking the news-chasers. Fortunately, you knew what to focus on.
You knew (at least, if you read my previous analyses) that the rally that was likely to follow the surprising employment numbers most likely already happened. It’s all about getting the right perspective on what’s happening instead of being pulled by it.
It’s about “hovering over the emotionality of the market” rather than being affected by it. Yes, it’s not easy, especially for those who have just begun to invest or trade their capital, but it is doable.
The vertical lines marked the current and previous cases when the employment numbers surprised the market in the same way, and the reactions were similar. Paying attention to that, instead of blindly following the popular narrative, would have made it easy not to get into the bullish camp after the initial reaction.
Those who moved to the bullish camp at that time are quite likely still in the long positions, while we are holding profitable short positions (entered on Oct. 20, with GDXJ at about $35.20) in the junior miners.
What’s next? The very short-term GDXJ chart reveals that miners also broke below their August lows as well as the late-October and early-November lows, and the implications of those breakdowns are bearish. The decline is simply likely to continue.
Please note that miners moved lower despite a daily rally in the stock market.
Stocks themselves just moved to their declining resistance line, and they even closed slightly above it. Will this tiny breakout hold? I doubt it.
The current situation appears similar to what we saw in early 2022 due to the analogy with regard to the geopolitical concerns and fear surrounding them.
The above chart from Google Trends shows that both cases are indeed analogous and that we are already after the peak concern.
Now, back in early 2022, stocks peaked after a sharp rally above their 61.8% Fibonacci retracement and after moving slightly above their previous short-term high.
Right now, stocks touched their 61.8% retracement and moved slightly above their previous short-term high. The top appears to be in or at hand.
This, in turn, means that junior mining stocks are likely to get a solid push to new lows.
While we’re talking about “peak concern”, it’s good to note that gold (being a safe-haven asset) topped shortly after the peak concern back in 2022, and it did so also this time – exactly as I had warned.
Gold failed to break above $2,000, yet another time, and right now, it appears to be forming the right shoulder of a broad – yearly – head-and-shoulders pattern (the January top would be the left shoulder).
Of course, the pattern is just “potential” right now, but completing it seems likely, and the downside target based on it would be at about $1,600 (the size of the decline after the breakdown is likely to be similar to the size of the “head” of the pattern).
Naturally, this is profoundly bearish, not just for the gold itself but also for the mining stocks. And since both gold and stocks are likely to decline, the prices of mining stocks are likely to truly plunge. Remember the epic 2013 and 2008 declines in miners? We’re most likely looking at something like that in the not-too-distant future. And the best time to prepare is already in the past. The second-best time to prepare is right now.
All in all, it seems that our profits from the short positions in the GDXJ and in the FCX are likely to increase soon.
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Przemyslaw K. Radomski, CFA