Extreme Sign That 99%+ PM Investors Missed

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Briefly: In our opinion, full (200% of the regular size of the position) speculative short positions in gold, silver and mining stocks is justified from the risk/reward perspective at the moment of publishing this alert.

“Yesterday’s session was one of the most boring sessions of the year – nothing happened in gold, silver, mining stocks and not even the USD Index made any kind of meaningful move”. That’s what appears to be the case at first sight and that’s what we also thought, initially. Looking deeper, we found something that had not been seen in years, but that preceded almost identical developments many times in the past. In other words – it’s something nobody interested in the precious metals sector wants to miss.

What was extreme during yesterday’s session?

The boredom! - might be something that a guy in the back of the room would scream.

And he would be right. We already described the declining volatility in gold on Tuesday, so that’s not the detail that we meant above.

What we mean is something else which describes the intensity of trading – the volume.

In the case of mining stocks, the volume during the daily upswing in GDX was extremely low. It was something that we hadn’t seen earlier this year. Or in 2017. Not even in 2015.

The last time when we saw volume that was similarly low during a daily upswing (it was 16.7M yesterday, so we’ll focus on sessions with volume below 17M) was in 2015.

You’ll find the details on the chart below (chart courtesy of http://stockcharts.com) On a side note, that’s the only chart that we’ll discuss today as practically nothing happened in any other chart and everything that we wrote in the previous alerts remains up-to-date.

GDX - Market Vectors Gold Miners - Gold mining stocks

Precisely, the last time we saw volume that was lower was on July 9, 2015. GDX closed at $16.60 on that day. In less than two weeks, on July 20th, 2015, it closed at $13.49 and then continued to move lower at a slower pace, finally bottoming on August 5th, 2015 at $12.84. GDX declined almost $4.

Earlier than that, we saw similar action on May 11, 2015. The closing price was $19.63 and GDX moved higher for 4 trading days shortly thereafter, topping at $20.42. That was the top that started a huge decline, which ended as described in the previous paragraph. GDX declined over $7.

The previous session that was very close in terms of volume was on August 29, 2014. GDX closed at $26.00 and that was the exact top that was followed by the decline that ended on November 5, 2014 at $16.16. GDX declined almost $10.

There were a few similar cases in August 2014 and they were all close to the big, pre-decline top. GDX declined about $10 below them.

Before August, we saw a similar session on July 28, 2014 and that was yet another local top at $26.30. Again, we can discuss a similar big decline that followed – GDX finally ended about $10 lower.

May 21st, 2014 - it was right before the slide from $22.85 to $21.47. GDX declined over $1.

June 17, 2013 - the final day before the slide from $27.21 to $21.45. GDX declined almost $6.

Earlier in 2013 there were multiple cases when the volume was well below yesterday’s reading. With little buying power, it’s not a surprise that this was the year during which GDX’s value was more than cut in half. The January 2nd, 2013 closing price was $45.46 and the December 31st, 2013 closing price was $20.59.

Comparing the two previous paragraphs, we see that most of the decline took place when the volume during daily upswings was very low.

Please consider the kind of action that followed the cases that were very similar to what we saw yesterday. GDX declined very significantly in almost all cases, and in many cases (but not in all of them) the decline started right away. In the remaining cases, the start of the decline was only several days away and staying short seems to have been a good idea at that time.

Summing up, the performance of GDX after the similarly low-volume daily upswings is a very good confirmation of what we’ve been describing in the previous alerts – the extra-large short position in the precious metals sector seems justified from the risk to reward perspective. If we didn’t have an extra-large position by now we would be increasing it today. By the way, the broker that executes orders for the portfolios that your Editor manages based on the same analysis that you read here doubled the short position in silver at $16.665, which serves as a proof that we got better prices than the ones that we have based on yesterday’s action and thus doubling the position several days ago was a good idea.

As always, we will keep you – our subscribers – informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full short positions (200% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels:

Gold: initial target price: $1,218; stop-loss: $1,382; initial target price for the DGLD ETN: $53.98; stop-loss for the DGLD ETN $37.68
Silver: initial target price: $14.63; stop-loss: $17.33; initial target price for the DSLV ETN: $33.88; stop-loss for the DSLV ETN $21.48
Mining stocks (price levels for the GDX ETF): initial target price: $19.22; stop-loss: $23.54; initial target price for the DUST ETF: $39.88; stop-loss for the DUST ETF $21.46

In case one wants to bet on junior mining stocks' prices (we do not suggest doing so – we think senior mining stocks are more predictable in the case of short-term trades – if one wants to do it anyway, we provide the details), here are the stop-loss details and initial target prices:

GDXJ ETF: initial target price: $27.82; stop-loss: $36.14
JDST ETF: initial target price: $94.88 stop-loss: $41.86

Long-term capital (core part of the portfolio; our opinion): No positions (in other words: cash)

Insurance capital (core part of the portfolio; our opinion): Full position

Important Details for New Subscribers

Whether you already subscribed or not, we encourage you to find out how to make the most of our alerts and read our replies to the most common alert-and-gold-trading-related-questions.

Please note that the in the trading section we describe the situation for the day that the alert is posted. In other words, it we are writing about a speculative position, it means that it is up-to-date on the day it was posted. We are also featuring the initial target prices, so that you can decide whether keeping a position on a given day is something that is in tune with your approach (some moves are too small for medium-term traders and some might appear too big for day-traders).

Plus, you might want to read why our stop-loss orders are usually relatively far from the current price.

Please note that a full position doesn’t mean using all of the capital for a given trade. You will find details on our thoughts on gold portfolio structuring in the Key Insights section on our website.

As a reminder – “initial target price” means exactly that – an “initial” one, it’s not a price level at which we suggest closing positions. If this becomes the case (like it did in the previous trade) we will refer to these levels as levels of exit orders (exactly as we’ve done previously). Stop-loss levels, however, are naturally not “initial”, but something that, in our opinion, might be entered as an order.

Since it is impossible to synchronize target prices and stop-loss levels for all the ETFs and ETNs with the main markets that we provide these levels for (gold, silver and mining stocks – the GDX ETF), the stop-loss levels and target prices for other ETNs and ETF (among other: UGLD, DGLD, USLV, DSLV, NUGT, DUST, JNUG, JDST) are provided as supplementary, and not as “final”. This means that if a stop-loss or a target level is reached for any of the “additional instruments” (DGLD for instance), but not for the “main instrument” (gold in this case), we will view positions in both gold and DGLD as still open and the stop-loss for DGLD would have to be moved lower. On the other hand, if gold moves to a stop-loss level but DGLD doesn’t, then we will view both positions (in gold and DGLD) as closed. In other words, since it’s not possible to be 100% certain that each related instrument moves to a given level when the underlying instrument does, we can’t provide levels that would be binding. The levels that we do provide are our best estimate of the levels that will correspond to the levels in the underlying assets, but it will be the underlying assets that one will need to focus on regarding the signs pointing to closing a given position or keeping it open. We might adjust the levels in the “additional instruments” without adjusting the levels in the “main instruments”, which will simply mean that we have improved our estimation of these levels, not that we changed our outlook on the markets. We are already working on a tool that would update these levels on a daily basis for the most popular ETFs, ETNs and individual mining stocks.

Our preferred ways to invest in and to trade gold along with the reasoning can be found in the how to buy gold section. Additionally, our preferred ETFs and ETNs can be found in our Gold & Silver ETF Ranking.

As a reminder, Gold & Silver Trading Alerts are posted before or on each trading day (we usually post them before the opening bell, but we don't promise doing that each day). If there's anything urgent, we will send you an additional small alert before posting the main one.

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