Briefly: In our opinion, full (150% of the regular full position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective. This position was originally featured on Jan. 12, 2016 at 3:49PM.
In our Friday’s alert we wrote that one shouldn’t expect to see any real action or change based on Trump’s inauguration – the chart action confirms that indeed nothing really happened. The quiet thing that did happen was the decrease in the uncertainty. The implication is that the main trends can (and are likely) to resume. In the case of the precious metals market, the main medium-term trend is down.
Let’s take a look at gold (charts courtesy of http://stockcharts.com).
In Friday’s alert we discussed the possibility of seeing a weekly reversal candlestick and its potential implications. Ultimately, the reversal was not profound and has limited (but still) bearish implications. Does it change anything regarding the outlook? Not really, because the above was not required for the short-term outlook to be very bearish anyway – it would be just an additional confirmation (which – after all – we saw, but not in a clear way).
In the case of the short-term gold chart, we see that the declining red resistance line was once again touched, but not broken - the trend remains down. Gold once again closed the week below the 38.2% Fibonacci retracement based on the intra-day extremes (November – December 2016). Again, the downtrend remains in place.
The sell signal from the Stochastic indicator is now clearly visible, which makes the bearish case stronger.
Silver formed a weekly reversal that is clearer (with the opening price of $16.84, closing price of 17.03 and the intra-week high of $17.36), but not very clear, so again we can say that the implications are bearish, but not extremely so.
We can – also once again – add that the above doesn’t change much as the bearish implications of the recent short-term outperformance of silver relative to gold remain in place.
Besides, on a short-term chart we see another bearish sign in the form of the sell signal from the Stochastic indicator, and we can say exactly the same thing about the sell signal on the HUI Index chart (below).
As far as the USD Index is concerned, we see that the rising red support line remains unbroken despite a move lower on Friday and so do the December 2016 highs. The implications are bullish.
Summing up, Trump's inauguration doesn’t seem to have changed anything and the bearish medium-term outlook remains in place. The short-term outlook is also bearish due to many factors that we discussed in the previous alerts and also due to the sell signals from the Stochastic indicator – we saw them in gold, silver and the HUI Index (they confirm each other). The weekly reversal in gold and silver was not very clear, but it still has some bearish implications. The short positions appear to be justified from the risk to reward point of view.
As always, we will keep you – our subscribers – informed.
To summarize:
Trading capital (supplementary part of the portfolio; our opinion): xxx
- Gold: exit-profit-take level: $1,063; stop-loss: $1,243; initial target price for the DGLD ETN: $81.88; stop-loss for the DGLD ETN $48.78
- Silver: initial target price: $13.12; stop-loss: $17.53; initial target price for the DSLV ETN: $46.18; stop-loss for the DSLV ETN $22.86
- Mining stocks (price levels for the GDX ETF): initial target price: $9.34; stop-loss: $24.63; initial target price for the DUST ETF: $143.56; stop-loss for the DUST ETF $27.97
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: $40.12
- JDST ETF: initial target price: $104.26; stop-loss: $17.28
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
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 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 Tools and Indicators.
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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Hand-picked precious-metals-related links:
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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager
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