What Needs to Happen for the Gold Stocks GDXJ to Hit New Lows? / Commodities / Gold and Silver Stocks 2022
Although the general stock market hasrisen, this trend may soon reverse. Since it often moves along with goldstocks, junior miners can face a fall too.
Letthe S&P 500 Be a Clue
Mining stocks declined significantly thisweek, but they haven’t severely underperformed gold. There is a good reason forit – the general stock market moved higher recently.
What would have to happen for the miningstocks (in particular, junior mining stocks) to decline in a more profoundmanner and slide well below $30 (in the GDXJ)? For example, the trend in the stockmarket could reverse.
Guess what – that’s exactly what’s likelyto happen based on what’s going on in the S&P500 chart.
The S&P 500 just moved to the upperborder of its trading channel, which means that it’s now likely to reverse itscourse. This scenario is supported by the action in theRSI indicator.
As you can see on the above chart (markedwith red arrows), when the RSI moved to or close to 50 in recent months, itmeant that the corrective rally was either over or about to end. The RSI justmoved to 50.76.
In all recent cases, the declines thatfollowed this RSI-close-to-50 sell signal were sharp. All of them, except thelast one, were quite significant from the short-term point of view. In fact, ifthe S&P 500 does exactly what it did after the previous signals, it willlikely move close to the 3,500 level, which has been my target area for sometime now. That’s where we have the 50% Fibonacci retracement based on theentire 2020-2022 rally.
Most interestingly, though, such adecline would likely have a devastating effect on the prices of mining stocks(especially junior mining stocks) and silver. There might be some impacton gold, too.
TheRise of the Dollar
The above would also be in tune with anextra rally in the USD Index. After all, less competitive exports are not thatfavorable for the U.S. economy.
Speakingof the USD Index, after invalidating the breakout below the multi-yearhead-and-shoulders pattern, the USDX was poised to soar, just like I’ve beenexpecting it to do for more than a year, and that’s exactly what it did. And now it’s as high as it hasn’t been that high in 20 years!
TheUSD Index just broke above the previous highs, and it did so after correcting,which means that it just completed a massively bullish cup-and-handle pattern.This pattern is likely to send the USD Index muchhigher. However, since no marketmoves in a straight line, either up or down, let’s see where we have potentialresistance levels.
Thenearest resistance is provided by the 2002 high, and it’s slightly above the108 level.
Thismeans that the USD Index could easily rally by another 1 index point or so,which in turn could easily trigger another profound decline in gold.
Thiscould happen this week (or early next week), so please stay tuned.
Whether this triggers a massive declinein junior miners or not is a different matter. It might, but it also mighttrigger a move back to this week’s intraday lows or just somewhat below them,and then miners could show strength. Either of the above – if accompanied bygold’s move to/below $1,700 – would serve as a signal for closing one’s currentshort positions and taking our massive profits off the table.
Ifthe general stock market declines along with a rally in the USD Index, then thescenario in which the junior miners decline profoundly will likely be realized.I think it’s the more likely scenario here.
Do I plan to enter a long position once Iclose the current short position? Yes (justlike I did at the end of the previous big correction), but only if gold declines below $1,700. Ifit doesn’t, and it moves higher right now, then I most likely won’t make anyadjustments to the current short position. Remember – it’s not the point tocatch each and every price move – in fact, it’s impossible to do so. The pointis to select those trades that have the best risk-to-reward ratio and thenenter trades while waiting out (i.e., ignoring) possible trades that don’t havea very favorable risk-to-reward ratio.
Thank you for reading our free analysistoday. Please note that the above is just a small fraction of today’sall-encompassing Gold & Silver Trading Alert. The latter includes multiplepremium details such as the target for gold that could be reached in the nextfew weeks. If you’d like to read those premium details, we have good news foryou. As soon as you sign up for our free gold newsletter, you’ll get a free7-day no-obligation trial access to our premium Gold & Silver TradingAlerts. It’s really free – sign up today.
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Toolsfor Effective Gold & Silver Investments - SunshineProfits.com
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Disclaimer
All essays, research and information found aboverepresent analyses and opinions of Przemyslaw Radomski, CFA and SunshineProfits' associates only. As such, it may prove wrong and be a subject tochange without notice. Opinions and analyses were based on data available toauthors of respective essays at the time of writing. Although the informationprovided above is based on careful research and sources that are believed to beaccurate, Przemyslaw Radomski, CFA and his associates do not guarantee theaccuracy or thoroughness of the data or information reported. The opinionspublished above are neither an offer nor a recommendation to purchase or sell anysecurities. Mr. Radomski is not a Registered Securities Advisor. By readingPrzemyslaw Radomski's, CFA reports you fully agree that he will not be heldresponsible or liable for any decisions you make regarding any informationprovided in these reports. Investing, trading and speculation in any financialmarkets may involve high risk of loss. Przemyslaw Radomski, CFA, SunshineProfits' employees and affiliates as well as members of their families may havea short or long position in any securities, including those mentioned in any ofthe reports or essays, and may make additional purchases and/or sales of thosesecurities without notice.
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