Earlier today we suggested opening a speculative short position in the mining stocks and we would like to expand our reasoning.

The first thing that we emphasized was an evident bearish shooting star candlestick that formed on huge volume. One could argue whether the candlestick was really a "shooting star" candlestick (XAU Index) or a "gravestone doji" candlestick (visible in case of HUI Index and GDX ETF), but they both have bearish implications as they were seen after a monthly move higher and they formed on huge volume. These candlesticks formed because miners rallied initially today but failed to hold these gains as they declined to where they were at the beginning of today's session. We've been watching the market for a long time today and the most important price action materialized just before the end of the session - which explains why we sent out a brief Market Alert so late today.

The SPY ETF (proxy for the general stock market) attempted to move above its all-time high today and it failed. Actually, the ETF moved above its high and then declined much below the opening price. This is a bearish sign for the general stock market. This is a major ETF and a major resistance line so the implications of this action are important. The action in the Broker/Dealer Index (proxy for the financials) was bearish as well - we also saw a bearish gravestone doji reversal pattern.

The USD Index moved to the higher of two major, long-term support lines today. This may not be the final low, but when we compare this with the action seen in stocks (with the emphasis on the strength of the resistance that was not breached today) it becomes likely.

Additionally, the GDX:GLD ratio moved to a short-term resistance line today and the RSI indicator based on this ratio touched the 70 level - this action marked local tops multiple times in the past months. Please also note that the breakdown in the TSX Venture Index was never invalidated and continues to put bearish pressure on miners in the medium term.

The combination of the above factors makes the case for opening speculative short positions in the mining stocks.

Let's move to gold and silver.

Silver moved higher but the SLV ETF formed a shooting star candlestick just like miners. Silver is known to rally sharply just before taking a dive so last two days' action is not that bullish for the medium term. Yes, the SLV ETF just closed above the $28 level, however, this move is not yet verified.

Gold moved to its early-June high and then declined modestly. On the GLD ETF we also see a small "gravestone doji" pattern on significant volume. The situation on this chart is neither overly bearish from the short-term perspective (the candlestick alone is not really enough to say that) nor bullish (below 300-day moving average). However, it is still bearish from the medium-term perspective because of the situation in the USD Index. We realize that we have been repeating this for several weeks now, however that continues to be the case. If gold repeats today's rally, it will move to its 300-day moving average - a strong resistance line that we would expect to stop the rally. Such a move would likely be seen if the USD also repeated today's move lower - in this case, dollar would move to the lower of its major long-term support lines. Still, based on today's action in miners and in the general stock market it seems that we might not get so high in gold and low in USD before the short-term trend reverses.

Summing up, we believe that having an open speculative short position in the mining stocks and being partly out of the precious metals market with one's long-term investment capital is a good idea right now.

Thank you.

Sincerely,
Przemyslaw Radomski