Cabin Crew, Prepare For Landing: Gold Miners Plane Goes Down
2022.05.13 13:21
Once again, practically everything that I wrote in Monday’s analysis, Tuesday’s analysis, and yesterday’s analysis remains up-to-date.
In yesterday’s analysis, I wrote the following about the stock market:
SPX Daily Chart
Despite yesterday’s attempt to move higher, stocks closed the day below the neck level of the head and shoulders pattern for the third consecutive day. The bearish H&S pattern was confirmed, just as I expected.
The implications are bearish, and while the target based on this formation is slightly below 3,500, it wouldn’t surprise me to see a rebound from about 3,800 – that’s where the 38.2% Fibonacci retracement is located. I previously wrote about it in the following way:
ES Price Chart
and in the previous days / weeks.
It would trigger another immediate-term decline in silver and mining stocks in the near term, wchich would be followed by a (quite likely tradable) rebound.
So, it seems that the general stock market is quite close to its near-term target area but not yet at it – another move lower appears likely.
Having said that, let’s take a look at the other (usually main) determinant of the driver of junior mining stock prices – gold.
Gold Daily Chart
In yesterday’s analysis, I commented on the gold chart in the following way:
Please take one more look at the part that I put in bold. The stock market declined yesterday, while gold moved higher. What did the mining stocks do? The GDX ETF was slightly lower and the GDXJ ETF was slightly higher, but overall they didn’t do anything despite the intraday attempt to rally.
The above is in perfect tune with the current situation in gold and stocks. As gold rallied yesterday, and it moved a bit lower once again in today’s pre-market trading (~$7 at the moment of writing these words), it’s likely forming a broader bottom here. Since stocks (S&P 500 futures) are trading lower (they are down by 0.5%) in today’s pre-market trading, it seems that junior miners are about to get another bearish push.
GDXJ Daily Chart
As stocks are likely to move a bit lower before correcting, so are junior miners. This means that practically everything that I wrote about their performance and outlook remains up-to-date – the market simply agreed:
To summarize the technical part of today’s analysis, it seems that junior miners will move to their short-term target soon, which will enable us to exit the current short positions in them and (if one wants to do so, that is) to enter temporary long positions to benefit from the likely rebound.
As soon as the target levels are reached in the case of the GDXJ, I think that exiting short and entering long positions will be justified from the risk to reward point of view (regardless of whether you get a confirmation from me). Please note that the move to ~$36 could be sharp, and it could be reversed on an intraday basis.
