Monday’s Decline in GDX Almost Erased

tools spotlight

Briefly: In our opinion, full (200% of the regular size of the position) speculative short positions in gold, silver and mining stocks are justified from the risk/reward perspective at the moment of publishing this alert.

During yesterday’s trading, we saw a small rally in metals and miners, which was nothing extraordinary. The precious metals market had declined substantially on Monday and thus a small corrective upswing was a rather natural development. This doesn’t mean that the outlook improved. If metals and miners had moved back up on huge volume and ended the session much higher, practically invalidating the previous decline, it would have been bullish. But nothing like that happened and the outlook remains bearish.

The USD and Euro indices corrected a bit and the same goes for silver. The move higher was more visible in the case of gold, but it remains in tune with the way gold used to decline previously, so it’s not bullish. In the case of mining stocks, we saw a quite sizable upswing in the HUI and GDX indices. The former moved higher by 1.4%. But was this bullish? Not really, because some kind of strength was actually expected. The triangle-apex-based reversal was yesterday and, consequently, it was quite natural for mining stocks to form a top on this day. If the rally was not visible, it wouldn’t have been a top, but rather a pause. Therefore, everything seems in order and the outlook remains bearish.

In other words, everything that we wrote in yesterday’s alert, remains up-to-date. If you haven’t read it yet, it may be a good idea to do so today as it includes many charts that put the above comments into perspective. You can use the following link to access it: Prepared, Profitable, and Happy Silver Investors

Before summarizing, we would like to address the issue of the usefulness of our alerts to very short-term traders and day traders, as that’s what we were asked about by one of our subscribers.

You can use them in a few ways.

One idea is to only take short-term positions that are in tune with the positions or outlook that we feature in the alerts. For instance, if we feature a short position, but your very short-term signals suggest going long, you might want to pass on taking any position at all. But, if our outlook is bearish and we’re short and you also get a very short-term signal to go short, you’d go short. Then, as soon as you get an exit or long signal, you’d exit the position without entering another one as it would not be in tune with our position. Also, if we changed our outlook while you were holding on to a given position based on the very short-term signals, you’d exit it as both signals would cease to be in tune.

Another way to think about it is that it would be using our buy and sell signals to enter and exit the position, but also using other signals for the same purpose. For instance, if we go short, but you get an exit signal in a few days, while we’re remaining short, you could close your position. Then you could get another signal to go short and re-join our position. Then we’d provide the signal to exit the position and you’d exit your position as well.

The second idea is to use the guidance from the alerts along with the descriptions of the charts as tools which you would supplement with more short-term oriented signals and then make a trade. That’s actually another version of the previous idea that is more subjective - in this case you’d decide when to take which signal into account, while the former idea assumes a certain way of using both sources of signals.

The third idea would be to diversify trading strategies. Dedicating a part of the trading capital to intraday trading or very short-term trading, but at the same time dedicate some capital to more short- to medium-term trades. The signals from our alerts would be for the latter type of capital and other - more short-term-oriented signals would be for the former type of capital.

Naturally, these are just our subjective ideas and not an investment advice - we can’t say, which of the above would be most appropriate for each investor as it heavily depends on each investor’s specific preferences, circumstances etc. Still, it seems that even if a given trade is not created with the short term in mind, it could be useful also for very short-term traders.

Summing up, the outlook for the precious metals market remains bearish and the following weeks are likely to bring much lower precious metals values.

On an administrative note, due to your Editor’s travel plans for the rest of the week, the next few alerts will be shorter than the ones that we’ve been publishing recently (yesterday’s price moves were too interesting to keep today’s alert short, though). Of course, we will keep an eye on the market and we’ll keep posting the alerts on a daily basis, plus intraday alerts whenever the situation requires it.

As always, we will keep you – our subscribers – informed.

To summarize:

Trading capital (supplementary part of the portfolio; our opinion): Full short positions (200% of the full position) in gold, silver and mining stocks are justified from the risk/reward perspective with the following stop-loss orders and initial target price levels:

Gold: initial target price: $1,218; stop-loss: $1,382; initial target price for the DGLD ETN: $53.98; stop-loss for the DGLD ETN $37.68
Silver: initial target price: $14.63; stop-loss: $18.06; initial target price for the DSLV ETN: $33.88; stop-loss for the DSLV ETN $19.27
Mining stocks (price levels for the GDX ETF): initial target price: $19.22; stop-loss: $23.54; initial target price for the DUST ETF: $39.88; stop-loss for the DUST ETF $21.46

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: $27.82; stop-loss: $36.14
JDST ETF: initial target price: $94.88 stop-loss: $41.86

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

Important Details for New Subscribers

Whether you already subscribed or not, we encourage you to find out how to make the most of our alerts and read our replies to the most common alert-and-gold-trading-related-questions.

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 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.

=====

Hand-picked precious-metals-related links:

PRECIOUS-Gold falls on strong dollar, higher U.S. yields

SA platinum miners “dysfunctional” says JP Morgan

Freeport Plunges After Indonesia Toughens Environmental Rules

Ex-UBS Metals Trader's Fate in Hands of Jury in Conspiracy Case

=====

In other news:

World stocks move toward longest losing streak of the year

China's financial watchdog begins inspection of banks' risky lending - sources

Impossible dream? Unification less of a priority as Korean leaders prepare to talk

Commodities Are Flashing A Once-In-A-Generation Buy Signal