Gold & Silver Trading Alert: Miners Rally on Tiny Volume

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Briefly: In our opinion speculative short positions (full) are currently justified from the risk/reward perspective.

Not insignificant and not low. It was tiny. But is this really a bearish sign? After all miners moved higher and visibly outperformed gold...

Yes, in our opinion, it’s still a bearish sign. The were once again no changes in most charts that we usually cover (the situation in other charts is just as we described in Wednesday’s alert, so if you haven’t had the chance to read it previously, we suggest doing so today), but the “strength” in mining stocks is something that might seem very bullish, so that’s the thing that we’ll cover and focus on today (charts courtesy of http://stockcharts.com).

GDX - Market Vectors Gold Miners - Gold mining stocks

In yesterday’s first alert we wrote the following:

The move higher in the GDX ETF was not huge, but it was not tiny either – miners moved higher by 1.83%. This move was accompanied by low volume. This is a bearish sign not only by itself but also when we compare it to the price/volume performance of miners after they broke below the rising trend channel. Miners broke and declined on relatively high volume, then moved back up on volume that was lower, then declined on volume that was once again a bit higher and now we saw a move higher on even lower volume. The volume is rising during downswings and it’s declining during upswings, which suggests that the true direction of the market is down and the moves to the upside are corrections.

This bearish price/volume pattern continues – on Thursday we saw miners move higher (1.39%), but once again the volume was lower – to say the least. It was very small and this suggests that this was not the true move – the direction in which the market moved was not the true one. Even though miners moved higher, it seems that we can view yesterday’s session as a bearish confirmation.

HUI Index chart - Gold Bugs, Mining stocks

Gold stocks remain below the declining resistance line, so nothing really changed in price terms yesterday. There was no breakout. The resistance line is very close to where the HUI Index is at this time, so the upside seems to be very limited. The downside, however, seems significant.

Consequently, there is yet one additional signal supporting the bearish case and we can summarize today’s alert in the same way as we summarized yesterday’s one:

Summing up, the outlook for the precious metals sector deteriorated further as gold declined along with the USD Index, invalidating a breakout above the declining medium-term resistance line and due to the sell signal from the Stochastic indicator based on the HUI Index. It seems precious metals and mining stocks will move lower in the short run, perhaps much lower. If gold continues to slide along with the USD Index, we might exit the long-term investment positions (the half that is invested at this time), but it’s too early for that just now.

We will be re-evaluating these positions on a daily basis and if we think that the situation no longer justifies keeping speculative short positions or that adjustments to the long-term investment capital are necessary, we’ll let you know. As always, we’ll keep you – our subscribers – informed.

To summarize:

Trading capital (our opinion): Short positions (full) in gold, silver and mining stocks with the following stop-loss orders and initial (!) target prices:

Gold: initial target level: $1,245; stop-loss: $1,318, initial target level for the DGLD ETN: $64.60 ; stop loss for the DGLD ETN $55.00
Silver: initial target level: $16.13 ; stop-loss: $18.63, initial target level for the DSLV ETN: $62.07 ; stop loss for DSLV ETN $41.94
Mining stocks (price levels for the GDX ETN): initial target level: $20.40 ; stop-loss: $24.23, initial target level for the DUST ETN: $15.55 ; stop loss for the DUST ETN $9.28

In case one wants to bet on lower junior mining stocks' prices, here are the stop-loss details and initial target prices:

GDXJ: initial target level: $25.43 ; stop-loss: $32.17
JDST: initial target level: $10.50 ; stop-loss: $5.19

Long-term capital (our opinion): Half positions in gold, half positions in silver, half position in platinum and half position in mining stocks.

Insurance capital (our opinion): Full position

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 sings 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 always, we'll keep you - our subscribers - updated should our views on the market change. We will continue to send out Gold & Silver Trading Alerts on each trading day and we will send additional Alerts whenever appropriate.

The trading position presented above is the netted version of positions based on subjective signals (opinion) from your Editor, and the automated tools (SP Indicators and the upcoming self-similarity-based tool).

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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