How to Join the Mining Party… Before it Ends

Forget gold and silver for a moment. Do you hear the music? Yes, it’s coming from the mining ETFs club. But how long will the party last?

And more importantly, why miners, you may ask? Because miners tend to outperform in the early days of a major rally.

After closing only $0.10 below my initial downside target of $31 on Mar. 1 , the GDX ETF could be ripe for an upward revision. Able to ignore much of last week’s chaos, the GDX ETF’s outperformance of gold and silver signals that the tide has likely turned.

Please see below:

Figure 1

To that point, I warned on Mar. 1 that help was on the way:

“The GDX ETF has garnered historical support at roughly $29.52. The level also coincides with the early-March high, the mid-April low and the 61.8% Fibonacci retracement level. As a result, a corrective upswing to ~$33/$34 could be the miners’ next move.”

Furthermore, on Mar. 4 I wrote “when gold moves to $1,692, we’ll automatically open long positions in the miners”the GDX ETF ended Friday’s (Mar. 5) session up by 3.2% from my initial entry of ~$30.80 – $31. Thus, from here, the GDX ETF has roughly 3.8% to 7.0% upside (as of Friday’s close) before the $33/$34 levels signals that the momentum has run its course.

For now, though, positioning for more upside offers a solid risk-reward proposition . Prior to the initial decline, miners were weak relative to gold . However, after outperforming on Mar. 5, their steady hand was a sign of short-term strength. If you analyze the chart below, you can see that the size and shape of the current price action actually mirrors what we witnessed back in April.

Please see below:

ChartDescription automatically generated

Figure 2 – VanEck Vectors Gold Miners ETF (GDX), GDX and Slow Stochastic Oscillator Chart Comparison – 2020

For context, I wrote on Mar. 5:

Miners stopped their decline practically right in my target area, which I based on the 50% Fibonacci retracement and the 2020 highs and lows. Moreover, the proximity of the $31 level corresponds to the 2019 high and the 2016 high. Since so many support levels coincide at the same price (approximately), the latter is likely to be a very strong support. Moreover, the RSI was just close to 30, which corresponded to short-term buying opportunities quite a few times in the past.

In addition, a short-term upswing could provide a potential pathway to $35 – as this level also corresponds with the GDX ETF’s late-February high, its monthly declining resistance line and its 50-day moving average. The abundance of resistance levels – combined with the fact that an upswing would further verify the GDX ETF’s breakdown below the neckline of its potential head and shoulders pattern – should keep the upward momentum in check.

Over the medium-term, the potential head and shoulders pattern – marked by the shaded green boxes above – also deserves plenty of attention.

For context, I wrote previously:

Ever since the mid-September breakdown below the 50-day moving average , the GDX ETF was unable to trigger a substantial and lasting move above this MA. The times when the GDX was able to move above it were also the times when the biggest short-term declines started.

(…)

The most recent move higher only made the similarity of this shoulder portion of the bearish head-and-shoulders pattern to the left shoulder (figure 2 – both marked with green) bigger. This means that when the GDX breaks below the neck level of the pattern in a decisive way, the implications are likely to be extremely bearish for the next several weeks or months.

Due to the uncanny similarity between the two green rectangles, I decided to check what happens if this mirror-similarity continues. I used purple, dashed lines for that. There were two important short-term price swings in April 2020 – one shows the size of the correction and one is a near-vertical move higher.

Copying these price moves (purple lines) to the current situation, we get a scenario in which GDX (mining stocks) moves to about $31 and then comes back up to about $34. This would be in perfect tune with what I wrote previously. After breaking below the head-and-shoulders pattern, gold miners would then be likely to verify this breakdown by moving back up to the neck level of the pattern. Then, we would likely see another powerful slide – perhaps to at least $24.

This is especially the case, since silver and mining stocks tend to decline particularly strongly if the stock market is declining as well. And while the exact timing of the market’s slide is not 100% clear, stocks’ day of reckoning is coming . And it might be very, very close.

As I explained previously, based on the similarities to the 1929 and 2008 declines, it could be the case that the precious metals sector declines for about 3 months after the general stock market tops. And it seems that we won’t have to wait long for the latter. In fact, the next big move lower in stocks might already be underway, as the mid-Feb. 2021 top could have been the final medium-term top.

In conclusion, the gold miners should continue to glisten as oversold conditions buoy them back to the $33-$35 range. Due to the GDX ETF’s recent strength, combined with gold rallying off of the lows on Mar. 5, the PMs could enjoy a profitable one-week (or so) party. However, with the celebration likely to be short-lived, it’s important to keep things in perspective. While this week’s performance may elicit superficial confidence, medium-term clouds have already formed. As a result, positioning for an extended rally offers more risk than reward.

(We normally include the “Letters to the Editor” section in the full version of Gold & Silver Trading Alerts only, but today I decided to include it also. It might be quite informative too. Enjoy:)

Letters to the Editor

Q: Could you update your thoughts regarding physical [gold and silver] for those looking to acquire additional positions – specifically, what do you think premiums and availability are going to look like when/if spot goes a $100 or $200 down from here? By way of example, I bought some U.S. gold buffaloes at $1854 spot at $1954. Those same coins at $1710 spot are still around $1930, if there are any to be found.

A: It’s a tough call, because the premium values don’t follow the technical patterns. Still, based on the analogy to situations that seem similar to what we saw recently, it seems that we can indeed say something about the likely physical values close to the likely $1,450 bottom.

Figure 43 – Source: didthesystemcollapse.org

The above chart shows the eBay premium for 1 oz Gold American Eagle coins over the spot gold price.

In April 2020, the premium spiked at about 14%. It was likely even higher in March (we don’t have the direct data), but the volatility back then was bigger than it is right now, so it seems that the current premium and the April 2020 premium values are a better proxy for the future bottoming premiums than the March 2020 bottom premium would be. If the volatility increases, one could see the premium at about 15% or so.

With gold at about $1,450, the above-mentioned information means Gold American Eagle coins can cost about $1,670.

Still, since gold futures prices seem more predictable than the prices of bullion coins, I’d focus on the former even while timing the purchase of the latter.

Moreover, please note that I’m planning to focus on buying mining stocks close to the bottom and move to metals only later. The reason is that miners tend to outperform in the early days of a major rally (just like they did in the first quarter of 2016). The fact that the premium is likely to be high when gold bottoms in a volatile manner is yet another reason for the above. When switching from mining stocks to physical holdings several weeks or months later, one might be buying at a smaller premium over the spot, and also after having gained more on miners than on the metals. Of course, the above is just my opinion, and you can purchase whatever you want – after all, it’s your capital and your investment decisions.

Q: Hi P.R., thanks for the advice on this trend, it’s been an amazing trade.

As I’m trading on XAUUSD, are you also able to advise the targets for a gold long entry, or should I wait for the final bottom before opening any longs?

A: I’m very happy that you’re making profits thanks to my analyses. While I think that the very short-term (for the next 5 trading days or so) outlook for gold, silver and mining stocks is bullish, I think the targets are more predictable for mining stocks than they are for gold and – especially – silver. Still, this time, the short-term upside target for gold is also relatively clear – at about $1,770. That’s why I put the $1,758 in the “For-your-information target” for gold in the “Summary” section below.

Q: Are we looking for the short-term upside move to be 1-5 weeks before the final decline into the 1350-1500 zone? I’m a little unsure of the timing you’re laying out.

A: I’m looking for the short-term upswing to take place between 1 and 3 weeks – that’s the part of the “Overview of the Upcoming Part of the Decline” section about it:

  1. It seems to me that the initial bottom has either just formed or is about to form with gold falling to roughly $1,670 – $1,680, likely this week.
  2. I expect the rebound to take place during the next 1-3 weeks.
  3. After the rebound (perhaps to $33 – $34 in the GDX), I plan to get back in with the short position in the mining stocks.

In my opinion it’s most likely that this counter-trend rally will take about 1 – 1.5 weeks. Then, I think that the decline to about $1,450 in gold will start.

Q: You have informed us to make the move when the Gold price “REACHES” $1693.00. My question is; Does the word “Reach” mean when the price touches that point, if only for a moment, or does “Reach” mean when it closes the day at or below $1693.00?

Thank you for your response to this question.

A: “Reaching” a price means the same thing as “touching” the price or “moving to” the price. This means moving to this price level on an intraday basis – even for just one tick . If I mean closing prices, I will specifically describe them as such.

For instance, I currently have binding exit positions for the current long position in the mining stocks – and these are exactly the price levels that I have put in my brokerage account as a limit sell order.

Q: Please comment on the Hindenburg Omen for stocks:

Figure 44 – Source: Refinitiv

A: Thanks. The Hindenburg omen is not one of the most reliable indicators – even on the above chart, it’s clear that most of the signals were not followed by declines. Please note how many fake initial signals there were before stocks finally declined in 2019 or 2020. There are many other reasons to think that stocks are going to move much lower, though. In the very short-term they could still move higher, but this move could be fake and could turn out to be the right shoulder of the head-and-shoulders top formation.

Q: 1) for shorter-term trades such as the potential 10% pop in the GDX, is NUGT better?

2) the plan after we re-enter a short trade when the GDX gets to $33/$34 might mean a longer haul before we hit rock bottom . You have mentioned time-scales up to 20 weeks (ish). Due to a longer holding period , would the CFD route be a cheaper route when compared to NUGT? I’m asking in general terms because each provider imposes different fees and I don’t expect you to comment on the fees charged by IG, which is the service I use.

I also recognize that NUGT only offers 2 X leverage, whereas CFD’s offer up to five times leverage.

Finally, the manner in which you detail the rich tapestry of the economic forces that impact PMs is revealing and educational. I find this all fascinating.

I have my own views which can be summed up like this: How many inflationary false-dawns and panics has the bond market had? Ever since 2008, when the FED launched QE, there have been numerous bouts and hissy fits of inflationary expectations that have subsequently sunk like a dodgy soufflé. I think this time is no different and it’s entirely possible the 30-year bond could drop to ZERO. I am in the deflationary camp.

How might the 10 year at zero or possibly sub-zero and longer, out on the duration curve to (TLT ETF) dropping to 0.5%, affect the price of gold?

Your thoughts as ever, are much appreciated

A: 1) That depends on whether one seeks leverage or not, and how much thereof. Please note that some short-term trades could sometimes become medium-term trades if the market decides to consolidate or move in the other direction before continuing the predicted trend. In this case, non-leveraged instruments are at an advantage over the leveraged ones, because they don’t suffer from the back-and-forth trading as much as the leveraged ones do.

If one’s desired exposure to the GDX ETF wouldn’t exceed the cash that one dedicated to trading, then in order to have the same exposure one would simply have half of the capital employed in NUGT (which is 2x leveraged). This way, the exposure would be identical, but the NUGT would imply additional risk of losing more capital if the trade takes much longer than planned and/or if the price moves adversely first.

Please note that there is also an additional way to gain leverage (it’s not available for everyone, though) and that is through the use of margin on one’s brokerage account. I’d prefer to use margin for the GDX before aiming to gain leverage through NUGT.

In other words, I’d first use more cash for GDX before I’d go into NUGT. If I wanted to have even bigger exposure than the one achieved by employing more capital to GDX, I would then consider using margin, and then I would consider using NUGT if I still wanted to get more leverage.

There might be some traders who would seek to combine both for even bigger leverage (buying NUGT on margin), but this is definitely not something that I’d recommend to most people. In fact, it seems that in many cases, sticking to the GDX would be a good way to go.

2) I think I already replied to the first part of your question (NUGT vs. CFD) above. Also, for other people reading this reply – please note that CFDs (contracts for difference) are not available in many areas, including the USA and Canada.

I’m glad to read that you enjoy reading my explanations of the current situation in the markets (precisely, my opinions on it).

Real interest rates are one of the most important drivers for gold (along with the USD Index), so a drop in the 10-year rates to zero or sub-zero levels would likely be very beneficial for the gold prices.

Figure 45

Also, based on the pace at which the rates have rallied recently, they might be topping here, but… There was no decline in the previous 40 years that was as big as what we saw between 2018 and 2020. Consequently, the corrective upswing might be bigger as well. Also, the above chart is not necessarily the scale that is big enough to make very long-term conclusions.

Figure 46

Over the past centuries, whenever the rates fell very low, they then rallied back up with vengeance. After WW2, it theoretically would have been a “good idea” to keep stimulating the economy with low rates – and yet, they soared. Right now, the monetary authorities strive to be very dovish and keep pumping liquidity into the system, and yet the rates are rallying anyway.

So, while the analogy to the previous years – or the past few decades – suggests that the rally in the rates might be over or close to being over, the very long-term chart suggests otherwise.

To make the situation even more complicated, if the stock market has already topped in February, and we have already entered the Kondratiev winter cycle, it means that we can theoretically expect the rates to fall, then rise in a credit crunch, and then fall much lower.

All in all, the outlook for the interest rates is anything but simple and clear. Perhaps what we see right now already IS the credit crunch and the 10-year rates are on their way to above 2% – after all, they used to return above their 200-day moving average after the previous medium-term declines. It seems to me that the move above 2% in the 10-year rates could correspond with gold’s decline below $1,500.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

What Underperforms Gold and Heralds More Declines?

With the gold miners underperforming gold, and gold underperforming the USDX, it was only a matter of time before the house of cards came crashing down.

The writing has been on the wall all along with signs for all to see. On Jan. 5, I warned that the GDX was approaching an inflection point in the following way:

The GDX ETF managed to rally above its 50-day moving average – just as it did at its November top. Moreover, please take note of the spike in volume that we saw yesterday. There were very few cases when we saw something similar in the previous months, which was at the November high and at the July high, right before the final 2020 top. The implications are bearish.

And despite Friday’s (Jan. 8) 4.82% sell-off, the GDX’s last hurrah is likely to end with even more fireworks.

Please see the chart below:

ChartDescription automatically generated

Figure 1 – VanEck Vectors Gold Miners ETF (GDX), GDX and Slow Stochastic Oscillator Chart Comparison – 2020

With technicals foretelling the decline, many bullion bulls closed their eyes to the plethora of warnings signs that you can find in the previous Gold & Silver Trading Alerts.

For example:

  1. A huge volume spike in the first session of 2021 was very similar to what we saw at the November 2020 and July 2020 tops – this heralded declines.
  2. The GDX’s stochastic oscillator bounced above 80, mirroring similar readings that preceded five pullbacks since September.
  3. Arguably the most important indication that keeps on flashing the very bearish signals , the GDX’s underperformance relative to gold remained intact.

In addition, the GDX is on the cusp of forming a head and shoulders pattern . If you analyze the chart above, the area on the left (marked S) represents the first shoulder, while the area in the middle (H) represents the head and the area on the right (second S) represents the potential second shoulder.

Right now, $33.7-$34 is the do-or-die area. If the GDX breaks below this (where the right shoulder forms) it could trigger a decline back to the $24 to $23 range (measured by the spread between the head and the neckline; marked with green).

Since there’s a significant support at about $31 in the form of the 50% retracement based on the 2020 rally, and the February 2020 high, it seems that we might see the miners pause there. In fact, it wouldn’t be surprising to see a pullback from these levels to about $33, which could serve as the verification of the completion of the head-and-shoulder pattern. This might take place at the same time, when gold corrects the decline to $1,700, but it’s too early to say with certainty.

Also, let’s not forget that the GDX ETF has recently invalidated the breakout above the 61.8% Fibonacci retracement based on the 2011 – 2016 decline.

ChartDescription automatically generated

Figure 2 – GDX VanEck Vectors Gold Miners ETF (2009 – 2020)

When GDX approached its 38.2% Fibonacci retracement, it declined sharply – it was right after the 2016 top. Are we seeing the 2020 top right now? This is quite possible – PMs are likely to decline after the sharp upswing, and since there is just more than one month left before the year ends, it might be the case that they move north of the recent highs only in 2021.

Either way, miners’ inability to move above the 61.8% Fibonacci retracement level and their invalidation of the tiny breakout is a bearish sign.

The same goes for miners’ inability to stay above the rising support line – the line that’s parallel to the line based on the 2016 and 2020 lows.

In summary, the GDX’s train has likely gone off the rails, with silver in the front car and gold in the back. And as the technical derailment unfolds, a resurgent U.S. dollar is likely to accelerate the impact. Furthermore, if the S&P 500 hops on board – and declines from its current state of euphoria – damage to the precious metals mining stocks could be particularly violent.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the target for gold that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Gold and Miners Are Not in Santa’s Bag

Do you feel the Christmas spirit when it comes to the yellow metal and miners? Because we don’t. Multiple signs over the past few days point to bearish weeks ahead for gold and the gold miners. The VanEck Vectors Gold Miners ETF (GDX) – the most liquid vehicle for investors and traders to gain exposure to gold mining companies – is indicating that things are only about to go downhill from here and a lack of action from options traders only serves to confirm that.

Despite rallying by 8.7% over a three-day stretch, the GDX traded sharply lower on Friday (Dec. 18), and yet again, failed to recapture its 50-day moving average (unlike gold). Moreover, GDX also closed below its early-December intraday high, while the GLD ETF remained above its analogous price level.

ChartDescription automatically generated

The relative weakness (miners underperforming gold) supports the following bearish thesis:

While gold corrected about 61.8% of its November decline, gold miners declined only half thereof. In other words, they underperformed gold, which is bearish.

The GDX ETF moved to its 50-day moving average – the level that kept its rallies in check since early October. Can miners move above it? Sure, they did that in early November, but is it likely that such a move would be confirmed or followed by more significant strength? Absolutely not. Let’s keep in mind two things:

  1. Back in early November, the GDX moved above the 50-day MA, when gold did the same thing, so if the GDX wanted to rally above this MA, it “should have” done so yesterday. It was too weak to do it.
  2. The early-November move above the 50-day MA was invalidated in just 2 days.

Moreover, please note that the performance of the GDX ETF from late-November to now looks like an ABC correction. This is not a bearish sign on its own, but it fits other indications described today and this week in general. It increases the chance that the top is already in or very, very close.

Another important development was the spike in volume during last Thursday’s (Dec. 17) upswing. It resulted in the largest number of GDX shares traded since the November 6 top (on days when GDX is positive), and we all know what happened to GDX after November 6 (As a point of reference, the four other highest volume days since the November 6 top coincided with declines of 6.13%, 2.74%, 3.40% and 4.29%).

In addition, options traders aren’t buying GDX’s rally. Despite put options (which profit when GDX declines) trading relatively flat, call options (which profit when GDX rallies) traded at a significant discount last Friday. Please take a look at the table below for details (courtesy of Yahoo! Finance)

A picture containing textDescription automatically generated

The lack of demand among options traders is another signal that last week’s rally is unlikely to continue.

Lastly, I’d like to share with you some thoughts on price targets.

How high could miners go? Perhaps only to the previous lows and by moving to them, they could verify them as resistance . The previous – October – low is at $36.01 in intraday terms and at $36.52 in terms of the daily closing prices. No matter which level we take, it’s not significantly above the pre-market price of $35.76, thus it seems that adjusting the trading position in order to limit the exposure for the relatively small part of the correction is not a good idea from the risk to reward perspective – one might miss the sharp drop that follows. Please note how sharp the mid-November decline was initially.

That’s almost exactly what happened – the GDX ETF rallied to $36.92 in intraday terms, and to $36.50 in terms of the daily closing prices. The breakdown was verified in terms of the daily closing prices, which is more important than what happened in intraday terms.

Consequently, the outlook is bearish as it seems that miners are ready for another move lower. There’s still a chance that the precious metals sector would move higher based on a possible short-term decline in the USD Index, but this chance is slim, especially given today’s pre-market decline in both the USD Index and gold.

The next downside target for the GDX ETF is the February top in terms of the closing prices – $31.05.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the target for gold that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

For a look at all of today’s economic events, check out our economic calendar.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Gold, Silver, Miners Teeter On The Brink Of A Breakout

This week has been a wild and emotional one and it’s just started!

With Monday’s big pop in the stock indexes, the big rally was based on vaccine news and bullish comments from the fed, convincing most traders and investors to be overly bullish this week.

My volume flow indicator showed a reading of 10 all day yesterday, which means ten shares were being bought on the NYSE at the ask, to everyone share being sold at the bid. Any reading over 3 is considered bearish short term, so ten was extreme. After the pop on Monday, stocks/indices closed lower by 1-2% on the session respectively the following session.

I have reiterated over and over, big moves (and gaps) in the price in the stock indexes that occur from the news are generally given back within a few days. This is still what I feel is going to happen in the coming days, albeit the last hour on Tuesday may have started that retracement.

The saying in the trader’s world is that novice traders typically trade at the open and experienced players trade at the close. This continues to hold true. The chart below shows you what the BIG money payers are doing, which is selling/distributing shares to the masses, evidenced by the volume in the final hour. It is this theory why we always base our new trades to have their stop loss triggered on the closing price, and not intraday swings. Utilizing this strategy has saved many trades over the years from being stopped out, and subsequently to turn into profitable winners. It is where the price closes that counts.

Precious Metals & Gold Miners

Metals and miners have been coming to life. In February, we sold our GDXJ position at the opening bell on the high of the day to lock in gains. We saw weakness in the market and took action to avoid any temporary selling, which ended up turning into a 57% market collapse. Tuesday for the first time, GDXJ is trading back to where we sold it for a nice profit with our Swing Trading ETF Trading service, and I’m getting excited again for this group of stocks.

Junior Gold Stocks (GDXJ) Close To Breakout

The Junior gold stocks (GDXJ) is showing signs that they are headed to test the major breakout level of this 8-year base. The price still has to run a little higher, and it could be met with some strong selling once touched. Be aware that junior gold miners are not in the clear, just yet. Once they clear resistance they are a long-term investment position.

Large-Cap Gold Miners (GDX) Already Broke Out

If you take a closer look at the large-cap gold miners (GDX), they have already broken out and started to rally. This is a new bull market for this particular group of stocks. We got long this new bull market a few weeks ago in my Technical Investor Portfolio which focused on long term position with a much wider stop loss than swing trading positions.

Gold Bullion in Full Blown Bull Market

Gold also broke out and started a new bull market mid last year. We are also long gold in our Technical Investor portfolio as well. Gold has completed its initial move but is on the verge of popping to the $2000 market if we get just the right market conditions over the next couple of months.

We are in what many consider unprecedented times for businesses and survival. As a long-time trader, I consider these exciting stages for stocks, and commodities. Lots of things are happening and they will be erratic and volatile I expect. How the world functions are changing more rapidly than many of us realize.

The last ten years of investing in stocks have been incredible. We all experienced a Super Cycle Bull Market, and those invested in stocks and who also bought homes early have made a fortune with very little effort. But I fear this may be coming to an end sooner than most people think and feel.

The fundamentals for stocks no longer make any sense with earnings way down and still falling. The Fed is printing money faster than at any time in history as well as paying everyone and everything to keep the lights on and the music playing. They could certainly keep things going for a while and drive the markets higher with loose money policies and prop everything up (including lower-rated corporate bonds).

Can the Fed and other central banks support the global economy? Remember, it’s not just North America under pressure, but every other country and nearly everyone and their business are enduring financial stress.

The bottom line is that no matter which way the markets go, we will be positioned on the right side with technical analysis and sound advice as to what actions, if any, to take. And both active trading and long-term investment portfolio positions are more critical now than they have been in the last ten years. The days of just buying every dip and holding will be over in a couple of months.

So far it has been a crazy, unprecedented period. Add to that, over 1,000,000 new trading accounts opened this year and many new novice traders who have entered the markets.   These people are frantically buying up stocks thinking they are going to make a lot of money. We believe they are going to have a very rude awakening when/if the bear market takes hold over the next 3-8 months.

Trading this year has been slow for our subscribers but our trading accounts continue to make new high watermark levels every couple weeks, and that is all that matters. The market crash shook things up, and during an unexpected crisis the best play, in our opinion, was to step back and cherry-pick only low-risk trades until price action returns to some normal level, which the market is finally beginning to do.

However slow, I am proud that we did not take any undue risk and that our model account has remained positive throughout 2020 and we are up when most other services, including the best hedge funds in the world, have negative returns thus far this year.

My staff and I are always scouring for new trading opportunities.  Right now, the XLF ETF, which is the financial sector, is breaking down and may present a short opportunity.  As you know, we also like silver, gold, and both the junior and large-cap miners, but we will first wait to see if this wave of buying is met with sellers in the near future.  Until then, we will keep you posted.

The next few years are going to be full of incredible opportunities for skilled traders and investors.  Huge price swings, incredible revaluation events, and, eventually, an incredible upside rally will start again.

I’ve been trading since 1997 and I’ve lived through numerous market events.  The one thing I teach my members is that risk is always a big part of trading and that’s why I structure all of my research and trading signals around “finding profits while reducing overall risks”.  Sure, there are fast profits to be made in these wild market swings, but those types of trades are extremely risky for most people – and I don’t know of anyone that wants to risk 50 or 60% of their assets on a few wild trades.

I’m offering you the chance to learn to profit, as I do with my own money, from market trends that I hand-pick for my own trading.  These are not wild, crazy trades – these are simple, effective, and slower types of trades that consistently build wealth.  I issue about 4 to 8+ trades a month for my members and adjust trade allocation based on my proprietary allocation strategy– the objective is to gain profits while managing overall risks.

You don’t have to spend days or weeks trying to learn my system.  You don’t have to try to learn to make these decisions on your own or follow the markets 24/7 – I do that for you.  All you have to do is follow my research and trading signals and start benefiting from my research and trades.  My new mobile app makes it simple – download the app, sign in and everything is delivered to your phone, tablet, or desktop.

I offer membership services for active traders, long-term investors, and wealth/asset managers.  Each of these services is driven by my own experience and my proprietary trading systems and modeling systems.  I have a small team of dedicated researchers and developers that do nothing but research and find trading signals for my members.  Our objective is to help you protect and grow your wealth.

Please take a moment to visit www.TheTechnicalTraders.com to learn more.  I can’t say it any better than this…  I want to help you create success while helping you protect and preserve your wealth – it’s that simple.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Technical Developments in Gold Mining Stocks Offer a Bullish Signal for Spot Gold

Three reasons for gold prices to rise

I recently outlined three different reasons why I expect gold prices to rise further. While the yellow metal remains within a consolidation, recent developments have increased my conviction that the shiny metal is poised to break to fresh multi-year highs.

In my previous article, I discussed that gold prices were able to hold higher despite a rise in the dollar and a strong equity market. Stocks have pared back some of their gains as of late and the dollar has also retreated.

While it is somewhat a concern that gold prices were not able to gain in those conditions, a technical setup in gold mining stocks continues to highlight the bullish potential.

Gold prices have correlations that are commonly watched. For example, gold prices tend to move the opposite of stocks although it is not a perfect correlation. Similarly, gold often moves the opposite of the dollar as XAUUSD, the commonly referenced instrument for spot prices, is measured against the US dollar after all.

But more important than these correlations is the price action in gold mining stocks which tend to trace price movements in spot gold a lot closer.

Technical Outlook

More specifically, I have been looking at GDX which is the VanEck Vectors Gold Miners ETF. This ETF tracks a basket of the biggest gold mining stocks.

GDX Weekly Chart
GDX Weekly Chart

The weekly chart above shows that GDX broke above its 2016 high in late April to trade at a fresh seven-year high. When it comes to technical analysis, this is a textbook bullish breakout.

But what’s even more common is for a retest of the breakout point. The breakout point is a price level that previously served to hold prices lower. For GDX, this falls just below $32.

Generally speaking, if technical traders are convinced of the bullish break, they will look to defend the breakout point on a retest. This is exactly what happened in GDX last week.

GDX Daily Chart

Looking at the daily chart above, you can see that GDX gapped lower on Friday but that buyers immediately lifted it higher from the breakout point. The rally has continued since then, and the ETF briefly pierced to a fresh high yesterday.

These developments point to strength and this is the main reason why I think gold is headed higher.

XAUUSD Daily Chart

The daily chart for spot gold shows that buyers have held XAUUSD above a horizontal level at $1683 on a daily close basis on two dips since late April. This same level acted as resistance early March before the nearly 15% decline.

While gold prices hold above $1683, which is now seen as support, my upside target falls at $1788. This level previously acted as major resistance, holding the yellow metal lower from late 2011 until the end of 2012.

Italy’s Economy Proves Extremely Vulnerable to Coronavirus Epidemic

Governments around the world are in a quandary over Covid-19: how to counter the economic disruption caused by the outbreak when public-health measures to contain the disease require often severe restrictions on people’s ability to travel and work.

Italy has reported the largest number of cases of coronavirus in Europe, standing at more than 9,100 now, with at least 463 deaths to date, leading the government to take drastic measures to slow the spread of the disease. Schools closed on 5 March for a minimum 10 days and sporting matches will be played behind closed doors for the next month, if they haven’t already been cancelled. The authorities have expanded a quarantine to all of Italy, restricting public gatherings and encouraging “social distancing”.

The public health challenge the Italian government faces is very serious. But on top of the disruption to millions of ordinary people’s lives and the distress for those worst affected, the Italian economy is experiencing a triple shock.

Export Sector Risks

First, Italy’s export-oriented industry is relatively heavily exposed to the disruption to global supply chains caused by the initial outbreak of the disease in China. As Europe’s most-important manufacturing powerhouse after Germany, Italy is the EU’s third biggest exporter of goods to China and third biggest importer from China after Germany and France.

The particularly virulent outbreak of the disease in Italy is taking place in the country’s northern industrial heartland. The region of Lombardy alone counts for around 27% of exports and 22% of Italy’s GDP, with the total share of the economy attributed to severely impacted regions rising to 40% once Veneto and Emilia-Romagna are included.

Significant Impact on Tourism Industry

Secondly, the impact on Italy’s treasured tourism sector is significant. The international spread of the virus is discouraging visitors to some of Europe’s most popular holiday destinations such as Milan, Venice and Florence. Tourism accounts for 13% of Italy’s economic output by itself. Even after the global and Italian manufacturing sectors start to recover, Italy’s tourism exports might well lag behind should travellers remain reluctant about voyaging too far from home.

Vulnerable Economy and Public Finances

Thirdly, the Italian economy and public finances were already in a vulnerable position in comparison with those of other European countries even before the coronavirus struck. GDP shrank in the fourth quarter. Public debt remains high. We expect gradually rising debt to GDP in the future. In addition, we undertook an exercise a month ago to stress test the public finances of EU countries. Italy scored weakly in terms of its fiscal vulnerability to a severe economic shock and capacity to weather such a crisis without significant increases in public debt.

Conclusion

Our conclusion is that Italy is facing a very difficult year as the epidemic has brought widespread disruption to many communities in addition to the distress they are suffering as the death toll has mounted. We estimate that the economy may shrink in 2020 by at least 0.3%; we had previously forecasted growth of 0.25%. The sometimes-shaky coalition government of Prime Minister Giuseppe Conte has limited room for fiscal manoeuvre to offset the economic shock absent endangering debt sustainability.

The government has opened up its fiscal first-aid kit amid the public health emergency to help businesses, workers and those on the front-line dealing with the health crisis. Measures include doubling a “shock therapy” fiscal stimulus package to EUR 7.5bn (0.4% of GDP) on 5 March, including tax credits for companies hardest hit, bolstering a national wage-supplement fund and extra cash for health services and the civil protection and security forces. There are now discussions about further raising the size of the stimulus.

Weaker-than-expected growth and extra-governmental spending suggest that Italy’s budget deficit will widen significantly this year, if only temporarily, after narrowing to 1.6% of GDP last year. The government recently estimated a deficit of 2.5% of GDP in 2020.

In normal times, that would put Rome at loggerheads with Brussels as Italy has repeatedly brushed up against EU fiscal limits. However, this time is different: in recognition of the gravity of the situation in Italy and in the rest of Europe, the European Commission has indicated maximum flexibility around its fiscal rules in 2020 if spending is clearly linked to the epidemic mitigation. Still, Rome’s approach needs to recognise the government’s budgetary constraints and still-elevated public debt of 135% of GDP at end-2019, second highest in the EU after Greece’s.

There are concerns that public debt may rise towards 140% of GDP in coming years, which could adversely impact on investor confidence particularly as a pronounced slowdown in global growth now appears definite this year. After all, an economic downturn can increase debt via multiple channels.

One is by curtailing tax revenue flows and raising counter-cyclical spending by governments, both driving budget balances downwards. Another is the reduction in nominal economic output, raising debt-to-GDP ratios via a denominator effect. Yet another is the possibility that the cost of servicing the debt rises as investors lose faith in governments with greater fiscal vulnerabilities.

One metric of investor concerns is the widening in the spread in yields between Italian and benchmark 10-year German government bonds to around 200 basis points, up from 130bps in mid-February. The last thing Italy needs presently is any deeper market sell-off and financial instability.

Even so, we recognise that Italy has significant institutional and financial strengths, among them a large and diversified economy, a long record of primary fiscal surpluses and moderate levels of non-financial private sector debt. Moreover, the government’s success in raising revenues supported the lower-than-anticipated budget deficit in 2019, which has given Rome greater leeway to release funds in responding to the crisis.

Crucially, Italy is a main beneficiary of the euro area’s ultra-accommodative monetary policy and lender-of-last-resort facilities. Italy can borrow over 10 years at very low rates still of just over 1%. Indeed, the BBB+ sovereign ratings we assign to Italy – itself 1-2 notches above the assessment from US credit rating agencies – reflects our unchanged view of Italy’s systemic importance within the euro area and associated likelihood of receiving multilateral support in worst-case scenarios.

Dennis Shen is a Director in Public Finance at Scope Ratings GmbH.

This Sliding Index is About to Send GDXJ and Other Gold Mining ETFs Down

Before moving to the chart, a few words why this index is a proxy for juniors, and why it’s not as perfect. It can be used as a proxy for juniors because literally hundreds of junior mining companies are listed on this exchange. It’s not a perfect proxy, because there are also other companies listed there that are not even close to the mining business such as tech stocks.

So… What’s going on in this proxy for junior miners?

It’s declining – that’s what’s happening. In particular, it declined below the rising medium-term support line that’s based on two profound and clear bottoms: the 2016 and 2018 lows. And it’s not something that happened just yesterday. It happened about 3 weeks ago and unless the TSX Venture Index rallies today, this week’s close will mark the third consecutive weekly close below this line. That’s important because this means that the breakdown – even though it’s tiny – was just confirmed. And confirmed breakdowns are likely to be followed by further declines.

Now, the more significant the support that was broken, the bigger decline one can expect, and the line that was just broken is definitely significant.

But maybe the tech stocks just underperformed?

Fat chance – the Nasdaq is very close to its all-time highs, so the odds are that it was not the technology sector that dragged the index lower.

Please note how closely did the TSX Venture Index follow precious metals sector (lower part of the chart includes gold, silver, and HUI – proxy for gold stocks) higher in 2016 and how the subsequent decline happened at the same time. The 2018 decline was also more or less in tune. The sizes of the moves were different, but overall, prices moved in the same direction on average in the medium term.

This means that the confirmed breakdown in the TSX Venture sends a huge warning to the gold, silver, and mining stock bulls. It’s not an immediate-term or even a short-term sign (we have plenty of them coming from other places), but it is a powerful sign pointing to sector-wide decline in the following months. We have been warned by yet another market. Those who refuse to listen will have to face the costly consequences.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Gold & Silver Trading Alert – this analysis’ full version. There, we discuss gold outlook in more detail, recent platinum developments or the very short-term PMs situation. Finally, we’ve also included a helpful summary of the gold move’s determinants at play. Taken together, these paint a coherent picture of what’s likely to come in the following months. The full Alert includes detailed price targets for gold, silver, and the GDX ETF as well as related leveraged ETNs. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

Thank you.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits – Effective Investments through Diligence and Care


All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’