With price action similar to the Amgen reversal, senior mining index GDX, is testing resistance.
As if taking a cue from yesterday’s report on gold heading lower, today we have gold and the miners deciding to head higher.
All is not what it seems however.
The GDX chart above, shows we’re already in up-thrust condition. There has been a sign of supply (selling overwhelming the buying) and now we’re heading up into a test.
Going back to this report on Amgen, it’s a near exact replica of price action; except it’s (apparently) taking place quicker.
Note the bottom of the ‘Sign of Supply’ is a Fibonacci 8-Days from the high posted on April 21st.
That would naturally lend itself to expect testing action to complete on Fibonacci Day 13, which is this coming Friday.
Remember, that as soon as everyone’s got it figured out (Fibonacci time frame) it changes to something else. So, if no one is really paying attention and still in the hyper-inflation bull camp, they’ll look at this action as a bull move; missing the reversal (when or if it comes).
Tests can fail as well. GDX could push through the resistance and negate the up-thrust.
As stated many times before, the gold market’s too crowded with too many rabid bulls.
This may be a good test and reversal set-up but we’ll stick with shorting biotech (not advice, not a recommendation).
By the way … biotech’s doing very well on the short side today … 🙂
No-one in the inflation camp wants to hear that … it’s uncomfortable to face the potential of being so wrong.
Albeit wrong in the short term but probably right later … after it’s too late. More on that farther down.
Just like the lazy (and complicit, we might add) financial journalist publishing the standard (speck blaming) propaganda for the day, so too are the hyper-inflationists, jumping on the most popular bandwagon in town.
Not even considering the potential for a retrace; admittedly, which could be short and sharp but significant nonetheless.
This site has presented several times, we’re in a situation similar to that of Genesis 41. It’s the corn and grain first … then gold and silver.
Just to back that up a bit before getting to the charts, we have the following:
“Such a shallow retrace is rare. More typical is at least a 38.2%, level being tested before price reverses and heads lower. “
Back in the days of my engineering work (see About), when making a statement or conclusion, other engineers (or science professionals) would immediately expect some kind of proof or supporting documentation.
It’s just the way their brains worked; it’s somewhat an implied (unspoken) requirement of the industry and a good thing as well.
A good engineering team (along with technicians) functioned more like a select military unit than a civilian office.
Very heady stuff; especially if you’re on a major project like aircraft flight test and certification.
So, after observing and working thirty-plus years of price action, the empirical observation of 38.2%, retrace being more common than 23.6%, had become my own mental note. Filed away with the other mental notes of price action.
That note’s easily supported … even on the fly as we’ll see below.
We have three charts of equities in the silver/gold mining sector that are currently all in a retrace.
Two of those went straight to 38.2%, while one of them hit 23.6%, first and then went on to 38.2%.
Agnico Eagle Mines (AEM) retraces to 38.2% and stalls.
Seabridge Gold (SA) retraces to 38.2% and stalls.
Wheaton Precious Metals (WPM) retraces first to 23.6%, and then moves on to 38.2% … and stalls.
Reading price action is partially an art-form and partially a science. The one thing that can’t (ever) be leap-frogged is experience.
Dr. Elder said it himself when he said ‘trading is an old man’s game’.
If you don’t have (but want) the experience, it’s best to get started now. Start racking up the hours … days … weeks and years.
Steven Van Meter in this update (time stamp 1:39) shows the Rydex Bull/Bear ratio (courtesy of northmantrader.com). That indicator, along with what seems like everything else, is at a never before extreme.
This is going to be one of those technical discussions that are tedious and long-winded (also to include at least one boring anecdote).
If desired, go to the Summary for the CliffsNotes wrap up.
For the rest, let’s get into it:
A quick look at the news and financial sites has the inflation narrative still raging.
This link to an article on ZeroHedge offers a slightly different perspective than one-way hyperinflation.
At least it says deflation is a possibility.
Back in the day, I used to read as many of these press releases as possible; combine them, put them in a spreadsheet, develop a ‘voting’ system (with variable adjusted algorithmic weighting), look at buy and sell recommendations, try to figure out if MACD, RSI and Stochastics could predict the next move … and then, I would watch Wall Street Week with Louis Rukeyser.
It’s a frustrating, unprofitable exercise that was ultimately abandoned while the search for market truth carried on; only to be found much later in 2007; that’s a story for another time.
There’s nothing wrong with Rukeyser. In fact, I did use his program (once) in what was at the time, a trade of pure intuition.
During his opening monologue (probably May 19th, 1989), Rukeyser talked about gold reaching multi-year lows.
At some point, those links are going to become common knowledge.
Hopefully, there will be long lasting and certain retribution for the perpetrators. However, for those who ‘volunteered’, it’s already too late.
Now, on to the markets.
Friday’s real estate rebound (IYR) looked like short-squeeze action.
In response to that and late in the session, short position DRV (3X inverse IYR) was increased at price 9.37 (not advice, not a recommendation).
Volatility is still low in IYR. Short positions can be increased with less risk.
The Big Break
When and if the break comes, it’s likely to be fast; no time to plan.
Whatever plans one has should’ve been laid out well ahead of time.
Two markets being watching closely are Peabody Energy (BTU) and Seabridge Gold (SA).
By now everyone’s aware that a certain far east country is going about its business and building their infrastructure … as if nothing had ever happened. Funny that.
Conversely, the coal market has bottomed out and so has Peabody.
On top of that, the Texas Freeze laid bare the farce that is climate change, global warming and green energy.
Quietly, without fanfare, coal is seeing increased demand.
The blue arrow is a gap in trading that could be filled.
To do that, there might have to be a massive market collapse, pushing BTU back to that level … if only temporarily.
Huge volume in the past six months shows that somebody’s buying.
The next market is Seabridge Gold (SA) which is being watched for essentially the same reasons. If Van Metre is right and we’re in a deflationary impulse, the entire public’s on the wrong side of the trade.
If SA can get itself below 13 – 14, it then enters free-fall territory.
If that happens, as with BTU, it too might be a short lived event.
Currently, the firm’s position (not advice, not a recommendation) is short biotech and real estate via LABD and DRV, respectively.
If BTU and SA get to extreme lows, both of them have potential for a ‘ten-bagger’, the possibility to gain over 1,000%.
Getting to such gains would necessitate a change in the current strategy of trading, to buy and hold.
Pressure seems to be building for some unexpected event that would cause a market break; Possibly the devaluation of the Yuan as discussed by Steven Van Metre.