Briefly: Short positions (full position) in gold, silver, and mining stocks are justified from the risk/reward perspective.

In today’s second alert we wrote that unless the mining stocks reversed, we would probably open a speculative short position here as it would mean an invalidation of an important breakout in the HUI Index which would serve as an important bearish sign. We also noted that silver’s move very temporarily higher today (especially relative to gold) was a bearish sign that had been very often seen right before big declines. An invalidation of the breakout in the HUI Index could serve as a confirmation.

We are about 1 hour before the end of today’s session and after some consolidation below the 2015 high, the HUI Index - instead of invalidating the move lower - declined even some more. At the moment of writing these words, the HUI Index is trading at 202.67 while the highest daily close of 2015 is 207.69. The move back below the 2015 high is visible, also from the long-term perspective.

Now, in case of breakouts or breakdowns it is critical to wait for a given breakout’s or breakdown’s confirmation before taking action based on it as these moves are quite often invalidated. However, in case of an invalidation of a breakout or breakdown, the signal (a meaningful one) is usually meaningful right away - as soon as the invalidation is seen. The question is if an invalidation is indeed taking place. The HUI Index is well below the intra-day high of 2015 and it is now visibly below the highest daily closing price of 2015. The invalidation in terms of daily closing prices will be seen if the HUI Index closes below the 207.69 level today - which is very likely given that the markets close in about an hour and the HUI is even below 203. We are not seeing an invalidation in terms of weekly closing prices, but we find the daily closing prices as most important here, especially that it was more than one session in 2015 that ended above the 205 level.

All in all, we are most likely about to see a major sell signal from the HUI Index. Additionally, we are most likely going to see a major sell signal from the weekly Stochastic indicator (only if the HUI Index closes the week without a big rally, but that seems likely).

As we wrote above, silver provided us with an intra-day bearish sign and another thing is that today’s session is a confirmation that the gold-USD link once again clearly favors lower gold, silver and mining stock prices over the following weeks.

Overall, the short-term outlook changed substantially today (the medium-term outlook didn’t as it had been bearish previously) and it seems that the risk to reward ratio of short positions is now much more favorable than it was yesterday. Consequently, we view short positions as justified from the risk to reward point of view.

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

To summarize:

Trading capital (our opinion): Short positions (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: $973; stop-loss: $1,317, initial target price for the DGLD ETN: $89.05; stop-loss for the DGLD ETN $46.25
• Silver: initial target price: $12.13; stop-loss: $18.17, initial target price for the DSLV ETN: $61.16; stop-loss for the DSLV ETN $26.34
• Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $26.47, initial target price for the DUST ETF: $4.27; stop-loss for the DUST ETF $1.16

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: $14.13; stop-loss: $39.43
• JDST ETF: initial target price: $5.78; stop-loss: $1.60

Timing is critical right now and we want to send this alert to you as soon as possible so we did not adjust the stop loss levels and initial target prices for leveraged ETNs (they are the same as they were in the previous short trade) - we will update them in tomorrow’s alert, but they shouldn’t be much different from the above values.

Long-term capital (our opinion): No positions

Insurance capital (our opinion): Full position

Thank you.

Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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