The Perfect and Profitable Reversal in Miners

Theoretically, it’s not really important to pick the exact top – it’s good to be just near it when making transactions.

And to be 100% precise, all that matters is that the exit price is more favorable than the entry price for a given trade. And if the annualized rate of return is better than the risk-free rate of return (one that bonds provide), then it’s already very good.

And yet, there’s a specific sense of satisfaction that comes from being able to withhold from trading before the price hits the extreme and entering the trade on the exact day of reversal. In fact, it’s even more satisfying if it was known in advance when the price is going to reverse and at what price – and then it really happens.

Well, my friends, it seems that we were able to do exactly the above. It might be too late to congratulate ourselves because the trade is not over yet, but it does seem that we re-entered short positions right at the reversal. Actually, it gets better. Not only did the GDXJ reversed before the end of the day, and not only did it move below our entry orders, but it also moved below the day’s opening price, thus ending the day “in the red”!

On top of that… The intraday high was only several cents above the levels that I wrote about previously as the entry price ($35.57 and Friday’s intraday high was $35.63) for this short position (in my previous Gold Trading Alert), so even if someone missed my intraday Gold Trading Alert on Friday, they would have entered the short position almost exactly at the intraday top.

And the best part is…

The Perfect and Profitable Reversal in Miners - Image 1

The best part is that the outlook is now extremely bearish because of what happened on Friday, so our (almost immediate) profits are now very likely to increase shortly.

The intraday reversal itself, as well as the place where AND WHEN we saw it all confirm that the top is in.

And if it isn’t, it’s likely that anything that we’ll see before the decline won’t be significant or long-lived.

The WHEN aspect is covered by the triangle-vertex-based point, which was due on Friday. I wrote about this many days ago, which makes it Friday’s reversal much more reliable.

The fact that the GDXJ reversed after moving so close to both blue resistance lines, the previous top, makes it likely that that was IT. If, however, we see a tiny move higher, right to those resistance lines, it won’t change anything.

The Perfect and Profitable Reversal in Miners - Image 2

On a very short-term basis, we see that the GDXJ once again moved to the rising red resistance line, which stopped it. Right after the previous high, I wrote that the GDXJ was likely to move higher due to the triangle-vertex-based reversal point, and that’s exactly what happened.

In particular, I wrote the following (I’m putting the key fragments in bold – that’s what happened after I had written about it):

This means that the precious metals sector might not have topped yet, as the white metal tends to outperform the yellow one right before turnarounds.

Now, GDXJ’s very weak performance yesterday might suggest that the top is already in, and… It might be in for the GDXJ, but I still think that we’ll see a move even higher in the near term – or at least back to yesterday’s intraday high.

One of the reasons is the situation in gold that I already outlined above. The second reason is that junior miners’ triangle-vertex-based reversal point is very close, so miners might top before gold does. This is quite likely, as miners are likely to underperform gold close to the top (which we just saw).

Zooming in allows us to see that the GDXJ declined after moving to the rising red resistance line, but it then closed above the declining red support line, thus verifying it as support.

Yesterday’s weak performance of mining stocks might be at least partially explained by the weak performance of the general stock market.

The latter is moving back and forth, and yesterday’s session took the S&P 500 Index 1.34% lower. This movement is around two rising support lines, which makes those moves particularly important.

If stocks break lower from this consolidation, the breakdowns will be confirmed, and the road to new lows will be open.

That’s quite likely to happen within the next days and, if not, then weeks.

If stocks decline but gold rallies, we might see some erratic performance in mining stocks – similar to what we saw on Wednesday. In this case, miners could rally on the intraday basis once again and then decline before the closing bell.

The important thing is that all this is short-term smoke and mirrors. The medium-term trend remains extremely bearish, and even a brief look at world stocks confirms that.

Friday’s performance as indeed as I had forecasted – miners jumped higher and then they declined, closing the day lower. It seems that the profits from this short position are going to increase shortly.

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