GDXJ: While Focusing On Details, Don’t Miss Great Downturn!
2022.06.10 20:21
If history is to repeat itself to some extent, junior miners have a chance to make minor corrections. However, is it worth leaving short positions now?
Let’s take a look at what happened in junior mining stocks.
GDXJ 4-Hour Chart.
In last Friday’s (June 3) Gold & Silver Trading Alert, I commented on Thursday’s rally in the following way:
Last Friday’s and this week’s declines confirm the above. The high-volume rally marked the top – those who got excited at that time likely bought exactly or very close to the top, instead of shorting at that time. Fortunately, you were prepared.
After taking profits off the table and closing short positions on May 12, we immediately entered long positions (it turned out that it happened right at the bottom), and we then took profits from that long position on May 26. Next, we returned to short positions. These positions are already profitable, but it seems that they will be much more profitable soon.
Why?
Most importantly, because history rhymes, we’re likely to see a repeat of 2012-2013 or the 2008 decline. So far, the current slide is in tune with the 2008 performance.
However, let’s not dig into the long-term details yet. While we’re close to the short-term chart, let’s focus on what it features. For your convenience, here it is once again.
Long-Term GDXJ Chart.
The recent April-May decline doesn’t have to be repeated to the letter, but we could see something similar nonetheless. After all, that decline is the most recent analogy to what we’re about to see in the GDXJ (a massive decline).
Based on the above, I marked two cases from the precious decline (the initial decline and the entire decline) and I copied them to the current situation, assuming that the recent top is indeed the starting point of the next bid decline (which seems likely in my view).
It turns out that junior miners might need to decline to or slightly below the May lows before we see even a moderate corrective upswing.
Will I want to trade this correction?
Probably not. If we see a correction from below $35, it might be small – only a bit over $36, so it might be way too risky to trade this quick rebound. The downside (the bigger orange rectangle) is much bigger than the above, and it would be a much bigger waste to miss this move in order to try to catch a relatively small move.
Besides, there’s also a chance that we won’t see any meaningful correction, just like what happened in 2020.
GDXJ Daily Chart.
Back in March 2020, after the corrective upswing, mining stocks fell like a stone in water. While the current price moves are less volatile, they are still somewhat similar (note the marked areas on the above chart).
Moreover, please note that the GDXJ failed to break back above the red and green resistance lines, which by itself is also a bearish indication.
The next short-term upswing is quite likely here, and (while I can’t make any promises with regard to performance), in my opinion, the profits on our short positions are likely to increase tremendously before we exit them.
