1-15-2016 Miner Exception To The Rule

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Yesterday I saw a rather bearish development in Miners, so I immediately began doing research to see if what I was seeing was a major concern. I found something very interesting that happened in the past, and I will share that finding with you here,  but first let me review Gold here.

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 This was Gold in my last couple of reports, and I expected it to drop down and test the break out. As mentioned, Gold had a very bullish set up, and the C.O.T.remains bullish. Here is how it played out. I expected a back test.

GOLD 1-11

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We got the back test, but Miners broke down as gold reversed higher.  And with Gold then down pre-market, would this pattern hold up?

 

GOLD 1-14

This was Gold at the close Thursday.  We would like to see this triangle hold up, and so far so good.

GOLD 1-14 c

What about the Miners though?  What did I see that was concerning, and what did I find that I thought was important to share with you?

 

I found that Miners are playing dead.  Faking.  I expect a strong run in Gold & Miners soon, so let me share my findings.

In cycle trading,   you look at daily cycles that are roughly 20-30 days long. They go from the ICL ( Deep low starting point) , then up to a peak,  then a drop into the next  DCL  ( That daily cycles low point).  Then another 20 – 30 day daily cycle follows . IF price in that next daily cycle drops lower than the last DCL,  it is called a ‘failed’ daily cycle and indicates weakness.  It indicates that the next bounce will produce even a  lower lows at the next DCL, until you have 3 or 4 daily cycles that lead to the next ICL.   

 

Why do we care?  Notice that this is GDX, and it dropped below the last DCL already.  That means it “Failed” to hold the lows.   Going along with the rule above, we should now expect a lower DCL next time. Lower price, also known as a Downtrend, etc.  I think that it is possibly a fake out/ shake out.

GDX 1-14

 

My research found an exception to that rule and so far it can apply right now.

 

Check out the HUI in 2004.

1. The first daily cycle out of the ICL forms a higher high 1 month later.

2. The 2nd daily cycle fails, drops lower than the first daily cycle. 

3.  It then takes off higher like that was just a shake out.  Why?  Isnt the rule is that this will produce a failed 3rd daily cycle? It is way to early for that to be another ICL at that 2nd dcl, so what happens.

2004 hui DCL

GOLD 2014-  Gold made higher lows and remained BULLISH the whole time.  In May, June, July, etc.  So following GOLD and not worrying about Miners ‘cycles failing’ was best. Miners were faking.

2004 Gold DCL

 

I have mentioned here in the past that when GOLD forms a Triangle pattern at the lows, I ignore cycle rules because I have seen things not ‘act correctly’, and still play out bullishly.  It is a different kind of bottoming process.  In other words, honoring those cycle rules would cause me to miss the move.   The cycle rule is… “GDX just failed on the 2nd daily cycle, it broke to new lows already, this pattern of new lows should continue.”

 

Look at this GDX   ‘cycle failure”  MAY to JUNE to JULY. 

Again the 1st daily cycle ended around day 30.  The 2nd daily cycle pops for 3 days and rolls over to a new cycle low. This should lead to a series of lower lows,right?  Then boom-  it took off higher leaving many behind.  WHY? Was it really a 47 day first daily cycle?  No,  it was a shake out & lets look at Gold at that time.

GDX 2012

 

GOLD –  Gold was forming a triangle and remained bullish  (like now) , with higher lows.  So Gold backtested the triangle 2 times,  and when it broke higher in August,  Miners took off too. Miners broke down while GOLD was BULLISH, it was a shake out.

GOLD 2012 triangle

 

   So this update is simply to show that historically there are times when Miners broke to new lows briefly  (A shake out ) and GOLD looked bullish. In all cases that I could find, GOLD was telling the real story, but it also looked like it was struggling at lows.  it was NOT struggling, or threatening to break down.  It was forming a base.  The move higher was quick once it kicked in and miners didnt miss the move. Look at the GDX chart above.  There was plenty of time to get in after Gold started to run.  Plenty.    UNTIL THAT POINT, it was frustrating and even worrisome to be jumping in and out .

 

   We are currently getting a pull back in some of the recent strong Miners  ( SA, NG, RIC, SBGL, MHY, DRD, ABX, etc) .  That is when you keep a watch list and look to enter trades when the trades are ready.  Have a great weekend, it is a 3 day weekend in the U.S.  Markets are closed Monday.   Pre-Market the Markets are at new lows, Oil is at new lows, GOLD & SILVER a breaking higher. It turns out to be good to be in Cash ( or maybe short).  I’ll be looking to see how the Miners react here, because GOLD remains bullish in my mind, and when she moves higher,  I think we have seen evidence that Miners will not be at the lows.  

 

Have a great weekend and thanks for being here at Chartfreak!  🙂

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~ALEX

 

It took me almost 4 hrs to gather charts and write this,  I wish I could have released it before 8 a.m.   Today looks very interesting with SPX, OIL, GOLD, and Miners  🙂

89 replies
  2. Ken
    Ken says:

    I do have another question:
    In the past have you seen Crude oil correlate with the SM as it looks like is occuring now ?

  3. deshy
    deshy says:

    Alex, With GC forming a swing low but everything up do we buy early in the cycle or avoid chasing the move? Suggestions? Got stopped out of miners yesterday–Ugggh!

    • Cason
      Cason says:

      I got stopped on UGLD yesterday to watch it go higher today, finally. 🙁 shake out worked perfectly. Against me.

    • chartfreak1
      chartfreak1 says:

      Hi Deshy

      Depends on risk tolerance, but patience may be better with Miners. UGLD with a stop may be fine, since gold is more bullish so far. Lows are extremely frustrating with the bumping along up then down. I was stopped out a week ago when my positions went below the 50sma, and as frustrating as that was with Gold looking bullish, it saved me on AUY & EGO’s drop.

      I am mostly watching GOLD. Gold has formed ‘ a swing’ , but is it the swing low? Could be, but another test of the triangle next week would extend the cycle count and possibly offer another swing low as a DCL on say day 28?

      With Miners selling down back towards their lows, I dont think it’ll be hard to make some good gains once Gold runs higher and miners try to play catch up.

  4. Irwin
    Irwin says:

    I looked up the definition of “lackluster” and my PM equities list popped up.
    And gold is up $16 – hohummm

      • Alan
        Alan says:

        Hah! Me too. New all time lows in mine. One day I will learn to manage risk properly. Bought ETE a few days ago with no stop thinking surely it had bottomed…Maybe I will make it up in miners, or not.

        • Cason
          Cason says:

          I know what you mean. I had been doing much better on that front. But I went in too heavy yesterday, just getting eviscerated right now. The problem is I limit gains and maximize losses. Something seems off here. No, really the gaps are too much, when we gapped up and faded I reacted in time. Gapping -400 points will break any plan.

          • chartfreak1
            chartfreak1 says:

            Stops are bitter sweet short term, but in the long run, The winners running higher will erase small losses.
            With out stops, The winners running higher will maybe help one to break even.

            Next we need the winners running higher : )

          • Maria
            Maria says:

            helps me 2go for a run… clear my mind … work off some of that pent off energy…. get back to center.
            cash is an awesome position right now…imho

    • Bill
      Bill says:

      Yes, but the market is selling off bigtime. That usually draws down the miners. Traders need to raise capital I think and sell the winners and the losers.

  8. Carlnetscouts
    Carlnetscouts says:

    While it may take some time to gold stocks to get going I think we are getting into the financial environment where they will be one of the only plays in town and values in PM stocks will surge (just being optimistic )

  9. Rube
    Rube says:

    Alex, Very nice historical research and analysis, quite interesting, informative and timely at the present PM complex juncture. Thanks!

  10. Carlnetscouts
    Carlnetscouts says:

    Anyone notice the coal companies being followed here: ACI, WLT and ANR are all out of business or bankrupt?

    • chartfreak1
      chartfreak1 says:

      Thanks You knight,

      I appreciate the encouragement and like you said, if you dont comment often and decided to just throw that out there to encourage me…. not necessary , but much appreciated! Tough tough markets these past few months.

    • chartfreak1
      chartfreak1 says:

      That broke above my chart from yesterday ( refresh) break out line, but seems to have hit the March resistance and stalled. If it drops as shown, I’d buy. If it goes sideways and flags, I’d buy. If it just does what DRD and HMY do? I’ll cry?
      .

  14. Cason
    Cason says:

    Alex, any thoughts on Nat Gas? 2.10 was about 50% retracement. We wanted a pullback, but didn’t like the way it sliced through MA’s without blinking.

    • chartfreak1
      chartfreak1 says:

      Not acting ideally.

      There is a gap at the $1.99ish area and that is a 61.8% re-trace, but I wouldnt touch it until it proves itself.

      I didnt expect it to retrace this much.

      • Cason
        Cason says:

        Part of the reason I like gas is it doesn’t follow the markets the way other asset classes do. Hard when most everything is down. Gold OK, but miners no help today either even with USD down. Good day to turn everything off now and disappear.

  15. Cason
    Cason says:

    Wow. Just wow. I am absolutely floored by the ferocity of the pullback today. Completely caught off guard. I am overall bearish and expect lower prices this year, but am stupified by the inability of the markets to bounce. All of my indicators were saying near term bottom and got the reversal yesterday. Really, really need a big rebound soon so that I can rebalance. I have a great plan for next few months but need some help from the market so I can execute.
    Issue is the huge gaps. I can hedge or stop quickly during the day, but when we open down 400 points, there is nothing you can really do.
    S&P broke through Aug lows about 20 min ago. Needs to close above 1867. Oil? Nothing can save oil right now. Keep thinking 1 day of it pops, shorts will cover. But for,how they just add if it goes up. Will change 1 day but you won’t find me trying to guess which day.

  16. Bill
    Bill says:

    Alex, all this is what I am seeing in GOLD. I go back to the beginning of August 2012. Notice how similar these RSI patterns are, notice how similar the pullbacks and then the way gold went crazy. If we stay on this ascending RSI, I think we get a huge move. At least based on History from 2012. You don’t really see this ascending RSI pattern too much. What do you think? Compelling and hopeful at least. refresh for evidence…………Have a great weekend.

      • Bill
        Bill says:

        Ya Right! I see that pattern, and to be clear the RSI shoots up to 80 and pulls back and continues tracing that blue line! I’m in, lets go………We all need this one.

    • chartfreak1
      chartfreak1 says:

      Yes, I agree and that is partly why I have been reporting that Gold is bullish and should burst higher.

      In my chart in todays report above, 2012 was where I pointed out the triangle forming ( And a triangle is forming now) , and that series of higher lows inside of a triangle is when you get a series of higher lows in the RSI. SO we do see the same thing now, and those triangles are bullish.

      Notice this too….In the middle of your chart at the end of 2013, start of 2014 , notice that there is the same rising RSI – stair stepping higher into 2014. That was happening as price continued to drop lower and lower. Then a burst higher from that ICL.

      So yes, I do look for divergences like that, and I am expecting a shot higher in Gold. Nice chart, thx

    • Cason
      Cason says:

      Nice find. But I do notice that the amplitude of each progressive BMR is worse and worse. Until that changes, I’m likely on the sidelines.

        • Cason
          Cason says:

          Sorry, Bear Market Rally.

          Essentially, this time we haven’t even gotten a rally. Would be interesting if we go ahead and roll over now and maybe put the final nail in the coffin (get it over with already!). Will be interesting to see what Alex digs up. I found nothing but bearishness this weekend. Gold COT not bad, about what you would expect; Silver never made COT ‘ICL’ levels which is a bit disturbing.

    • chartfreak1
      chartfreak1 says:

      That would simply mean that people expect Silver to lead Gold. ‘

      Gold bottomed 6 months before Silver in 2001. The Gold Silver ratio would have been rising the whole time out of the lows. .

      • Irwin
        Irwin says:

        Thanks Alex.
        So if it’s true that silver needs to lead gold, then GSR has to break down before we see anything meaningful in miners.

    • Cason
      Cason says:

      Notice that GSR highest at tops and lowest at peaks. B/c silver is more volatile. Two take-aways, 1) GSR out of whack shows both are down trodden and should revert to mean, 2) if uptrend resumes then SLV will outperform.

  18. chartfreak1
    chartfreak1 says:

    I’m taking off for the day, have a great weekend everyone.

    Maria mentioned a good point below. She said to look at that ugly weekly candle in SA. I was looking at SA and NG approach the 200sma on a daily and that could act as support, but with those ugly weekly candles, miners could continue lower or bounce around for a bit in this area before moving higher.

    Its not impossible to put in a huge ugly red candle on a wkly and then move higher, but I just rane through a bunch of weekly charts and there are some unhealthy looking charts.

    No rcommendation here, but the healthiest looking weekly charts were the African Miners DRD, HMY, GFI …..SBGL….. and DUST and JDST. 🙁 Just saying, we need more time to look healthy in Miner land, despite Gold not looking ugly.

    Good weekend all!!

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