Junior Gold Miners Dangerously Close to the Cliff / Commodities / Gold and Silver Stocks 2020

There are times to keep being focused on highertimeframes, yet the finer ones do send valuable signals at times too. Andtoday, every precious metals investor better pay attention to their message.Take a look at the below chartfeaturing the miners.

We will compare the juniorminers to what GLD ETF and SPY did. The latter are ETFs representing gold and the S&P 500.

Wezoomed in to the 2-hour chart to show you something specific that happened inthe last few days and to provide the likely explanation for it.

Namely,the miners started to show odd strength relative to both: GLD and SPY, and wemarked it with a green rectangle.

Therelative strength started in the final part of the previous week, when the GDXJapproached the $36 level. Instead of falling further, just like GLD did – or atleast like the SPY did on Tuesday – the GDXJ stayed above it.

The goldtrading tip for today would be always question such situationsbefore taking them at face value. Why would that be the case? What factor couldhave been strong enough to trigger such strength? Or maybe – in the absence ofsuch a factor – was the miningstock sector really strong enough to withstand the powerful bearishforces in the form of declining GLD and SPY?

Thereis a good reason for the miners’ “strength”. It’s the $36 price level itself.Or, more precisely, the strong support that it provides.

Thisis the price level from which junior miners rallied in early March.

Thisis the price level at which juniors reversed on an intraday basis on March 9th.

Thisis the price level that stopped the decline on March 10th.

Andthis is the price level that – once broken on March 11th – triggeredwaterfall selling that quickly took the GDXJ below $20.

Thisis also the levels that stopped the late-March rally, and the level thatinitially served as resistance on April 9th. 

Italso served as support after the initial – April 15th – decline.

Giventhat this price level worked as both: support and resistance so many times, isit really surprising that without a major breakdown back below the previous2020 highs in the GLD ETF, this level is holding strong?

It’sabsolutely normal. Let’s not overestimate this support’s importance, though.This level doesn’t invalidate the bearish goldprice forecast, it only changes its shape a bit. Instead ofdeclining just like GLD, the GDXJ is taking a breather above $36, but once GLDmoves decisively lower, the GDXJ would be likely to break below this level, andslide profoundly – catching up with the pace of the slide.

Pleasenote what happened on April 9th and April 13th. Theminers first declined (about $2) based on the resistance, but once they finallybroke above the $36 level, they soared until topping almost $6 higher. What’shappening now? The GDXJ moved higher first (about $2) and as soon as it getsthe bearish lead from gold, it’s likely to catch up, by breaking below the $36level, and sliding much further.

Thevery same chart features a specific self-similarity suggesting that the juniorminers are likely to get this kind of bearish kick shortly. Not only is thecurrent situation in the GDXJ itself very similar to what happened inmid-March, right before the slide, and right before the breakdown below $36 –it’s also the case with the GLD ETF.

TheGLD is moving back and forth around its blue moving average, while the RSIindicator (note: everything on the chart is based on the 2-hour candlesticks,not the daily candlesticks) is moving around the 50 level.

Thesimilarity in each ETF on a stand-alone basis might just raise an eyebrow, butthe fact that both similarities aligned at the same time – along with abreakdown in the general stock market and rallying USD Index – should makeone’s both eyes wide open.

Thenext big move for the precious metals market is likely to be down, and it’slikely to be really significant.

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Thank you.

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Toolsfor Effective Gold & Silver Investments - SunshineProfits.com
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