Turning the Tide in the GDXJ ETF
Very little changed during yesterday’s session, so if you’ve read my previous Gold Trading Alert (and previous days’ analyses), you’re pretty much up-to-date.
The USD Index seems to be bottoming here, while the precious metals are topping, and since it’s likely the investment public that is making the purchases now, it’s no wonder that the weakest part of the precious metals sector (junior mining stocks) got a temporary (!!!) boost recently. The investment public is likely to flee the market along with many of the more advanced investors and traders as the trend turns, and all the extra gains that we saw very recently are likely to become extra declines.
Why is the trend likely to turn? Because that’s what happened in similar times (fundamentally) and after similarly shaped price moves (technically) – not just in the precious metals market but also in the case of the USD Index and stocks (especially world stocks that I elaborated on yesterday).
There are two things that I’d like to add today, though.
One thing is the short-term picture. An “analytical tree”, if you will.
Gold and silver (exactly: GLD and SLV) moved below their rising very short-term support lines, which is a bearish sign for the short run.
The GDXJ, however, still holds up quite well. “Still”.
Given all the context that I discussed recently, it’s very likely to be temporary, and similar to what we saw in early 2016, just in the opposite direction. It was a bear trap then, and it’s likely a bull trap now.
Junior miners moved back up after reaching their rising support line yesterday, but they didn’t move to new intraday highs either. Given gold’s decisive breakdown, the odds are that this support line is about to be breached. This will likely be the short-term game-changer that opens the door to short-term declines.
And the short-term declines…
This is where the second thing that I’d like to emphasize today comes into play.
The short-term declines are likely just a brief intro to much bigger declines.
The second thing is the broad perspective.
The long-term HUI Index chart shows just how tiny and insignificant the recent short-term run-up has really been.
The situation here is similar to 2008 – please note how severe the consequences are. The fact that the big slide happens even a few weeks later, or that it has a one extra short-term correction in its initial stage doesn’t really matter.
What matters is how huge this medium-term decline is likely to be.
The fact that it seems that the short-term upswing is over or about to be over is just a nice addition to the extremely bearish medium-term picture.
Just as the night is darkest before the dawn, it “seems most bullish” right before the biggest slides.
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Przemyslaw K. Radomski, CFA