Mining Stocks, Chinese Stocks, and the Grim Outlook

Gold miners were just the most overbought since 2020, and it seems that they topped just like back then.

At least, that’s what the Gold Miners Bullish Percent Index is suggesting. It’s a breadth indicator based on the number of stocks with Point & Figure buy signals (a Point & Figure chart emphasizes strong moves while ignoring small ones). The closer the index is to 100%, the more overbought the situation in the mining stocks is, and the closer to 0% the index gets, the more oversold the situation in the mining stocks is.

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This index was just the most overbought since the 2020 top! Extreme bullishness accompanies tops, not bottoms. Bottoms and buying opportunities present themselves when prices are low and nobody wants to buy. We saw the opposite of that recently.

The index helps to analyze the emotionality of the market instead of being blinded by it. And right now, it implies that miners are about to slide, either visibly, or in a truly major way.

I marked other cases when Gold Miners Bullish Percent Index moved above 85 and then moved back below it with vertical, dashed lines. That’s what confirmed the 2016 top. That’s what indicated the 2019 top and the early-2020 top. And even the final 2020 top.

We just saw the same thing on top of all the other indications that I’ve been covering in my previous Gold Trading Alerts!

Quoting my yesterday’s analysis:

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Junior miners just plunged by 7.5%, with barely any help from the general stock market.

I’ve been warning about the link to the early-2022 top for many weeks, and the situation continues to develop in line with what we already saw. The history is rhyming.

The sharp rally that we saw in 2022 ended with an initial, volatile top, then GDXJ consolidated and then it broke higher which was a fake move. The invalidation of the breakout didn’t happen immediately, but when it happened, it was very sharp.

This is EXACTLY what we saw on Friday, and it happened after similar price pattern. Sharp rally, then a volatile top, then a consolidation and a fake breakout. Even the action in the RSI was similar, which I marked on the above chart in its upper part.

The GDXJ corrected yesterday, but this correction was already erased in less than 20 minutes of today’s session.

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The same is happening in silver. The white metal moved slightly back up yesterday, and it’s already back down today.

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The invalidation of the move above $30 and above the 2020 and 2021 tops is the key technical development that’s in place right now, and it has extremely bearish implications.

Also, remember how I wrote that the USD Index was about to rally further based on the recent invalidation and reversal?

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That’s what’s happening today. Of course, that’s just the beginning of the medium-term rally, but I wanted to share that today’s session is – so far – a confirmation of the previous bullish indications.

Gold is holding up slightly better than silver and miners, but it doesn’t change anything. The only thing that it confirms is that if one is looking for a good proxy for the next long position, gold might be the best choice.

Also, have you noticed that the Chinese stocks are turning down again after verifying their breakdown?

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Technical indications LEAD fundamental confirmations, so this is a very important piece of information. This tells us that the next big move is likely to be to the downside. The implications reach far beyond the Chinese stocks.

Given how big an impact the Chinese economy has on the rest of the world, the above suggests that the commodity market might be in for a downturn.

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Copper already invalidated its breakout above the 2021 and 2022 highs in a crystal-clear manner. It also did that in tune with its past tendencies – in May.

(On a side note, please consider that no fundamental measure of supply/demand would tell you that it is May when you should expect copper price to reverse, it’s the history rhyming that tells you that, even though the data is based on situations from years ago.)

Copper stocks (like FCX, which produces both copper and gold) are already declining as well.

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And given that the downturn in the Chinese stocks appears to have only begun, the downside for commodities as well as commodity stocks is likely substantial.

Junior mining stocks are likely to be one of the sectors that declines the most in the following months, as they are likely to be hurt by falling commodity and stock prices at the same time. There might be tradable rebounds along the way, but it seems that gold would offer a better risk/reward opportunity during those times.

Thank you for reading my today’s free analysis. Like I wrote earlier today, the current opportunity (actually, there’s more than one on the horizon) will likely not be here for much longer. I’ll do my best to navigate my Gold Trading Alert subscribers through the volatile waters, and I invite you to join them before it’s too late.

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