We would like to begin today's Market Alert with a question that we just received:

I have never seen anything close to Friday's volume in GDX. (...) I'd like to think this is one last flush out, but - I think it's time to get out here; there is no sign of this abating.

Actually, the volume for the GDX ETF was slightly higher on Jun 1, 2012 during a daily upswing, but we agree that the situation is now extreme. It's one of the highest volumes ever registered for the ETF. We have checked if the days when the volume on the GDX ETF is exceptionally big have anything in common - and they do. These times serve like turning points. When such a decline is seen after a decline, it heralds a significant rally, and when its seen after a rally, it signals a local top. There's no doubt that the preceding move was to the downside, so the size of the volume is something bullish.

It's not only the volume in the GDX that moved close to it's previous maximum level. The ratio of volumes of the GDX ETF and GLD ETF actually hit an all-time high on Friday. Conversely, the ratio of prices of these two ETFs moved to its 2012 lows (it had been lower only in 2008 after the sell-off) and right now the RSI indicator is below 30. This is something that signals extreme panic and, at the same time, local bottoms for either of the ETFs.

The same can be said about the GDX:SPY ratio - it moved lower and the ratio of volumes is at an all-time high. The implications are also similar - bullish.

In other news, we have seen another buy signal from the SP Extreme #2 Indicator - which prolonged the holding period for the half of the speculative capital for another day (2 weeks from today). We have received a question about this indicator's performance, so we would like to remind you that there is an entire section - actually two of them (simply click the following links to access them) - dedicated to it. The first one is titled "Details and Performance" of each indicator and its signals and the second one is called "Stop-loss details" and it presents a simulation of returns for different stop-loss levels. In short - ignoring the SP Extreme #2 indicator would have been a bad idea in the past and following it would have been profitable.

We remain bullish on the precious metals sector and, just as we indicated previously, a full long position is suggested for gold and silver, and currently also for mining stocks (our stop-loss order for the GDX ETF was hit on Friday at $42.50, but we think the situation is extreme enough to make the risk/reward ratio appealing for miners, which makes us suggest buying them again).

Naturally, we suggest remaining in the precious metals market with your long-term investments. We sustain our belief that platinum will continue to outperform gold in the following months and it's not too late to take advantage of that.

As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of February, 2013 and we will send additional Market Alerts whenever appropriate.

As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of February, 2013 and we will send additional Market Alerts whenever appropriate. That's right, we decided to keep sending you daily Market Alerts at least until the end of the next month based on the very positive feedback that these daily alerts have generated.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA