Do Or Die For Miners

Summary

• GDX has been hammered down from resistance at 35.10 to almost 30.
• SILJ has also dropped 18% from 14.57 to support around 12.
• That said, I believe the miners are presenting us with a great dip-buying opportunity.

coldsnowstorm/E+ via Getty Images

By David Brady

There’s been a clear bifurcation between the metals and miners over the past nine days. Gold has been drifting lower from 1815 to around 1760 as I type. Silver was no different, slipping from 23.70 to 22.20. But GDX has been hammered down from resistance at 35.10 to almost 30. A drop of 18% that bears no resemblance to Gold’s performance, which is rather strange. SILJ has also dropped 18% from 14.57 to support around 12. The drop in the S&P from 4740 to 4500 may be a clue. Gold is less impacted by stocks because it knows what the Fed will do if stocks drop in any meaningful way. That said, I believe the miners are presenting us with a great dip-buying opportunity.

The last time GDX was this oversold was back on September 29, when it bottomed out at 28.83. Since its peak at 35.08, it appears to be in an ABC correction with A ending at 31.64, the B bounce to 33.03, and C ending around 29.60 where wave C equals wave A in size. I’m looking for a bounce here before a positively divergent lower low but higher than the September 29 low of 28.83. Then up we go.

SILJ is even more oversold, but that is to be expected from the Silver miners. This just means that when SILJ takes off next, it is likely to outperform GDX. It is also displaying the same ABC structure. Wave C equals wave A at 11.60, which could present itself as a positively divergent lower low following a short-term bounce. This would also be a higher low than the 11.41 bottom on October 5.

Only a break of the prior lows of 28.83 and 11.41 in GDX and SILJ respectively would negate the possibility of a sharp rally higher to follow soon.

More broadly, as I shared a week ago, I am expecting stocks, oil, and bond yields to rebound imminently, then dump to even lower lows thereafter. The bottom comes when the Fed steps in. The only question is whether or not both metals and miners go down with the ship before taking off or, knowing that the Fed’s intervention is inevitable, they ignore the mainstream malaise and head higher. Either way, it’s only a question of when, not if, both metals and miners shoot higher.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Comments

[dmmd]

I don’t put much faith in David Brady’s assessment. Generic comments about stocks, oil, PM’s etc aren’t terribly helpful.

[terryongarland]

Where does Crypto figure in ?
That is the problem with this thesis.

[Swiss Maven]

Two risks here.
First is that the overall stock market is so over-owned, over-bought, and over-believed that it is susceptible to a sizeable setback, if not a bear market. If that occurs, all stocks will go down. Remember, mining stocks are just stocks.

Second, momentum in gold is heading down presently, as PMO shows us. If spot closes a couple days below 1,760, technicians I read are pointing to 1,640 as the next downside objective.

Now THAT would be a great dip-buying op!!

[Avoid the Herd]

@Swiss Maven, $1670 to $1680, basis the continuous futures contract, has provided firm support over the past 18 months. Should gold drop below $1670, I strongly doubt that $1640 would hold. More likely would be a trip down to the 1550s.

[hawkrnc_19]

The market cycles are so distorted buy the Fed it is almost makes even guessing difficult.

[steve lupo]

So give me a range when you feel it will take off. I feel tax loss selling in December then sometime in Jan to March but what do you feel. People know the market will sell off as bonds start to crumble. Once fed stops buying billions of 1.5 10 year treasuries the yield will have to go up to possible 3 by the summer making these bonds worth 50 percent. Stocks will crash so possible nothing will move for the miners till then