The entire precious metals sector may be about to take an unexpected hit.
Prior updates have discussed the Newmont (NEM) bearish divergence and reversal. This update shows a rising wedge breakout to the downside.
Using standard analysis techniques on the chart below, we get a measured move to the vicinity of 47 for NEM.
A decline of that magnitude, a drop of over 22%, may be the catalyst for a whole other bearish scenario.
Just based on empirical observation and analysis generally available (YouTube, et al), it’s pretty safe to say that no-one is prepared for a significant decline.
Well, almost no-one. As reported back in late September, the only YouTube analyst (that was located) proposing the idea of a decline was Sajad, in this report.
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
Let’s walk through the junior gold miner’s index (GDXJ), reversal one step at a time.
The following discussion refers to the five number points on the daily chart below.
Before we start … the stage was already set over the weekend with the ‘Newmont’ update. We showed that it’s in reversal.
The junior index (GDXJ) does not look obvious at this point. In the markets things (usually) never look clear-cut at the exact inflection point.
Let’s begin:
First, the gold miners have been in an uptrend along with the rest of the markets since the recent bottom in March of this year.
Data Point No. 1
Price action penetrates deep below established support with the second largest down volume shown on the chart. This can be interpreted as either a shake-out or the beginning of distribution.
The next day has a reversal bar that closes right at the support level. Volume is heavy, but not as heavy as the prior down session.
The day after that, the inside day, is the first indication that something’s wrong. If this index is really in a screaming bull market it’s not going to allow anyone to get aboard comfortably.
The following days show price action laboring to move higher until the next down-thrust.
Data Point No. 2
The down thrust pushed just below the support level shown and closed lower. Again, the next day is a tight range inside day … instead of a sharp move higher.
This action is more indication there’s not enough demand to push prices immediately higher.
Note: When price action penetrates support, it sets up what’s called a Wyckoff ‘spring condition’. It’s a market set-up where prices are expected to rise dramatically.
Instead of dramatic, it took four trading days for GDXJ to rise into the next data point.
Data Point No. 3
We’re at previous resistance and we can see price action stall. It then retraces back to the 57-area (black dashed line), and made another attempt at an upside breakout.
That attempt only lasts one day before we begin a decline into the next data point
Data Point No. 4
Price action pushes below the previous minor support at the 57-area and forms a reversal bar … which was yesterday. That brings us to today.
Data Point No. 5
Another attempt to breakout higher results in what looks like at this point, a failed attempt.
This is the danger point.
Price action closed off the high of the day. This indicates there’s not enough demand to keep the close at higher levels.
It’s at this location, a short position was opened (not advice, not a recommendation) via JDST with a stop near the day’s low (for JDST).
It’s a tight stop.
The expectation is for price action in GDXJ to decline from these levels.
We’ve shown how there is not enough demand to drive price higher. The cacophony of so called hyper-inflation ‘experts’, is all part of the picture.
If everyone’s long silver/gold miners … who’s left to buy?
Note: Posts on this site are for education purposes only. They provide one firm’s insight on the markets. Not investment advice. See additional disclaimer here.
For there to be a lasting blow‑off capitulation up‑thrust (and reversal downward) in gold, the stage needs to be set.
Reports like the one at this link help to set the stage for investor panic.
Personally, I appreciate Greg Hunter’s weekly wrap up and have watched it for years. Mr. Hunter was an investigative reporter, unique in his style and ideas … as is typical of someone with an edge or focused capabilities, he found himself on the receiving end of a corporate pink slip; or as he put it, ‘We have chosen not to renew your contract’.
On the flip side and by definition, Mr. Hunter’s guests are part of the masses; they are in the public eye. In that case, their ideas are public and mainstream. In the final outcome, the total of all mainstream and public (trading) ideas must result in loss.
Will this time be different? Will gold and silver see a blow‑out move to the upside and keep on going? Certainly, it could happen. Anything can happen.
As has been reported previously, sentiment indicators do not favor a long term sustainable upside move. There is too much bullishness.
What’s more likely, is some kind of penetration above known resistance with the attendant mass hysteria about “This is it!”
If and when that happens, we’ll be on the sidelines monitoring volume and price action … with an eye on going short. If so, we’ll be positioned for a potentially dénouement down move in the precious metals and mining shares.
For technical research and analysis of the precious metals and other sectors, please visit our parent site at ten-trading.com
For there to be a lasting blow‑off capitulation up‑thrust (and reversal downward) in gold, the stage needs to be set.
The Danger Point® 