Missing the Key Piece of the Puzzle?
There is something that no one’s talking about, and it has implications for world stock markets. Let’s look at when Joe Public enters the market…
Friday’s action together with today’s pre-market action together paint a perfect confirmation of what I wrote in my previous analysis.
Namely, it is highly likely that it’s been the investment public’s purchases that pushed various assets’ prices higher in the recent days.
I discussed this in greater detail on Friday (March 24th), and I even featured the GME chart as a confirmation, and all those comments remain up-to-date, so today’s analysis will be rather brief, and I will focus on the most recent price changes.
The GDXJ ended Friday’s session a mere $0.20 higher, and just a few cents above the 61.8% Fibonacci retracement level. Thanks to Friday’s and previous analyses, you knew that miners’ “strength” at this time shouldn’t be taken at its face value. And indeed, it’s highly likely that it’s a bull trap – a mirror image to what we saw at the beginning of 2016 before a sharp rally.
It’s a tiny breakout, and an unconfirmed one. The odds are that it won’t be confirmed due to two reasons:
- The GDXJ is already down in today’s London trading.
- Gold and silver are down in today’s pre-market trading. Gold invalidated the move above $2,000 once again.
Let’s take a closer look at the latter.
Gold was able to remain above $2,000 for just a very brief while, before invalidating the move.
And yes – silver showed very short-term strength once again. As you can see above, gold’s second attempt was accompanied by a much more profound intraday move higher in the white metal. As a reminder – silver’s very short-term outperformance of gold is a bearish indication.
The above indicates that the tiny breakout above the 61.8% Fibonacci retracement in the GDXJ is about to be invalidated (probably today).
Also, did anyone miss the HUGE, CLEAR, WEEKLY REVERSAL IN THE USD INDEX?
Weekly candlesticks are much more important than daily ones, as they have implications for the following weeks, not just months.
Last week’s “hammer reversal candlestick” implies that the decline is over and that the uptrend will resume shortly.
But is this a useful indication in case of the USDX?
Of course, it is!
It’s worked multiple times, and you can see two of them on the above chart. One time was in late January 2023 – that was what started the previous upswing in the USDX – the one which corresponded to this year’s biggest decline in gold.
The other time when we saw something like that was in early August 2022. What happened next? The USD Index soared by over 8 index points! The gold price tumbled, of course.
During both cases the price of the GDXJ fell significantly.
I KNOW that it’s frustrating to wait for a position to become profitable and that it’s nice to see it become profitable immediately. We did see this happen in the case of our previous two trades, so it might seem like something “normal”. It’s not – these were exceptionally great (not just good) trades – I mean the last long position in the GDXJ and then the short position in the FCX. Especially in case of the latter, we managed to enter the short position right before the slide accelerated and we exited right after the short-term bottom.
In the case of the current trade, things are simply… Normal. It’s normal that it takes a while to see profits build up over time. And this time, the profits that I think we’re about to reap from this trade (in my opinion, of course) are likely to be so huge that they are definitely worth to be waiting for – for an extra week or few weeks. It’s unlikely that we’ll have to wait much longer, tough.
Also, let’s keep in mind that the last profits that we took were from the sixth profitable trade in a row – a series that we started many months ago…
The investment public enters the market at the very end of the rally, and given all the technical confirmations that we saw recently, it does seem like the top is in or at hand.
If I didn’t have any position right now, I would have entered a large short position in junior miners right now.
But, I get the feeling that over the last couple of days we focused too much on the very short-term events (Fed’s interest rate hike) and price moves, while not emphasizing the really big deal enough. Here it is:
Just… Look at it. This analogy is not only clear.
The same price levels that started it all.
The same shape of price moves.
Even the same (61.8%) Fibonacci retracement stopped both corrections!
The 2008 top and the 2021 / 2022 tops in world stocks are truly analogous, and the implications are so ridiculously bearish for the stock markets around the world that it almost hurts that it’s not being talked about more openly.
Even the RSI indicator is doing the same thing.
And the sentiment… I have good memory, and I can recall how optimistic everyone was (including myself at that time – and I’m learning from the mistakes of others as well as those that I made myself…) after the sizable correction in gold that happened in 2008.
Then gold simply plunged.
But what happened to silver and mining stocks was something out of this world.
It was a bloodbath.
And the GDXJ ETF was not even around at this time, but based on what we know about its performance, it’s near certain that it would have declined even more (!) than the GDX, HUI, and silver.
Ladies and Gentlemen, we are in the same position in world stocks with one big difference.
The starting point from which miners’ decline is likely to accelerate is much… Lower! And this is despite a higher starting price of gold.
Perhaps the reason it’s not being talked about more is because it’s so ridiculously bearish for mining stocks that it seems to make “no sense” for someone who is not familiar with technical analysis (and most journalists aren’t).
But you know about those technical details behind the scenes. You have been warned – many times now.
You are prepared.
And just as its darkest before the dawn, it “seems most bullish” right before the biggest slides.
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Przemyslaw K. Radomski, CFA