We were asked to comment on the recent performance of the mining stocks and state if we are still bearish on this sector, so this is a brief update. In short, we are.

What we saw today in the HUI Index was a reversal shooting star candlestick which is a bearish development and a suggestion that the ABC correction that we just saw, is over. Please note that silver is at its turning point right now and the most recent move was up. Consequently, silver is likely to decline in the following days and probably weeks. If that takes place, gold and miners will most probably decline as well.

The most important factor behind the above is still in place. The USD Index moved below the short-term support line, however it remains above the 38.2% Fibonacci retracement level based on the May-July rally, so past week's decline should be viewed just as a correction within a bigger, medium-term uptrend. What is even more important, the USD Index remains above the declining long-term support line. This major factor that (along with the situation in the TSX Venture Index and ratios described in the latest Premium Update) makes us believe that miners will decline in the medium term is very much in place.

Please note that when we suggested shorting the GDX ETF (June 15), the latter was trading a few cents below $47. Today, it close below $44, so the short position is profitable. We don't suggest taking profits off the table yet, because we believe that GDX will trade much lower than that - probably at $31 or even lower.

We will comment on this situation in greater detail in the following Premium Update (scheduled for Friday, Aug 10, 2012).

Thank you.

Sincerely,
Przemyslaw Radomski