March 2 Intra-day Changes

We had a 1 day slam down in GDX & GDXJ on Monday, followed by a small, rather insignificant day on Tuesday.  Wednesday actually saw a sell off and an intra-day change to a strong reversal.  Now the question on many peoples mind is…

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Did we just have a 1 day slam down, reversal , and now we go higher like we saw in 2003? Or will there be further selling?

The answer , unfortunately, is that we need a little more time to know for sure. There are actually an unusually large number of things in play here that do not seem to line up, so we will discuss that too. First, let’s look at the markets…

SPX – Quite the surge higher after Trump talked up the economy. 2400 was hit on Wednesday at the bollinger band. The next daily cycle should also hit new highs , since this one will be right translated, so if we ever got a dcl it could be bought. I will monitor the next pullback. If this were to just continue straight up in blow off fashion, the drop would be sharp and fast too.

USD – So here it is, the USD actually made a new high, and this has its own implications. It is very bullish for the USD and normally it would have me expecting GOLD to continue to drop today. This also implies that we left behind an ICL in early February, so the USD would only be in its first daily cycle! This is very concerning for Golds bigger picture, unless the Precious Metals decide to run higher with the USD.

WTIC –  No change from yesterday

NATGAS – NATGAS did overtake the 10sma and so it has a swing low in place now. It appears to be on day 5 and may be setting up to break above the 200sma. The Inventory report comes out Thursday morning, and THAT might make or break this set up.

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**The situation in the USD is not a bullish one for GOLD, SILVER, and the Miners, but on Wednesday, they all acted bullishly.  To me things are not crystal clear as to how this will play out, because it almost looks like everything wants to go higher. Now I have to wonder if The USD will take off higher and drop the Precious Metals or can they continue to both run higher together after yesterdays reversal? Let’s take a look at what we have, and unfortunately it is a tad confusing.

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GOLD – Gold peaked on day 20 and that is bullish.  It then dropped and recovered. It did what it needs to do to put a dcl in place ( See chart) , but it is not common to see such a shallow  dip into a dcl  ( Especially with a bullish USD).  So what is Gold going to do? Tag the 200sma and drop again into the real dcl?  Will it drop to the 50sma,  which seemed more likely?  Or is it so strong that it could just surge higher despite the USD set up?  It is not clear, but so far we have a reversal with $1237.20 as the low. Watch that 1237.20 today.

SILVER – Silver is just bullish at this point, but if it is overbought and due for a dcl, wont it eventually drop back down and tag that 200sma?  I would think so.

** GOLD is overbought, Silver is overbought, Miners are oversold. Let the uncertainty continue to mount, right?  Let’s look at Miners.

GDX – With all that I said above about the USD starting a new intermediate cycle, and GOLD & SILVER not quite giving us a clear dcl, I dont know if I can trust this reversal, but let me explain more about this situation. It looks Bullish, but anything can happen.

1. In cycle analyses, you would buy a move over Wednesdays high ( $23.17) as an unconfirmed swing at the lows.

2. In Technical analysis – We do see ‘shake outs’ act like this and this is also a ‘buy’ in technical analyses, with a stop below Thursdays candle, so we’ll see how it plays out. I’ll explain that ‘buy’ set up below…

Let me explain the trade in technical analyses.

During the day, we were seeing a couple, then a few, then many miners reversing all at once.  That would indicate that not just 1 or 2 Miners were being bought, but it was a sector recovery. I was watching this reversal in GDXJ, and this is the set up in progress.

1.   In technical analysis,  when you have a sell off over a number of days and then you get a reversal candle, you look for it to take back more than 1/2 of the prior days candle.  If it does, you can buy it with a stop below the low.  ( I am in front of my screen so, if ‘circumstances seem favorable’, I will cheat and buy intra-day and hope that it closes above 1/2 the prior days candle).  This is GDXJ at 1 p.m., it was beginning to overtake 1/2 of the candle.

GDXJ 3:24 P.M. –

2.  The ‘favorable conditions’ for me were that mid day Gold was recovering & most Miners were too.  It seemed that they entire sector was reversing, so I believed GDXJ would hold 1/2 of that candle, and here we see that it was at 3:24 p.m.   Now we had   1/2 hr till close, and it could still sell off, so Stay Frosty and watch that trade.  (  The note written on the chart applies to Thursday s trading- I wont sell just because there is no follow through or even if we close a little in the red).

3.  GDXJ at the close– We practically got a bullish engulfing in GDXJ. So far so good, but again this is tricky confidence-wise with the USD setting up to go higher and Gold overbought ( was that a stealth dcl?  Or is the DCL coming on day 27 in Gold for example?).  This is about as uncertain as I have seen things 2 months out of an ICL, but I took a small trade and we’ll see how things shake out here. Tricky.

SO GDX & GDXJ are oversold, because they started their drop while Gold & Silver were still climbing. Other Miners are in the oversold area too. We can we look at a few more miners and see if things are lining up right across the sector for a possible reversal higher after that selling recently.

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GG –  Slightly oversold. Dropped right to the 50sma and reversed.  It did not close Green like many others, but the support was there and the reversal could get follow through. Higher GG would help GDX.

ABX – Slightly oversold. This is a very nice reversal right on the 200sma. This also would help GDX.

MAG – A very convincing reversal on support.

GPL – That was a pretty large drop in 2 days, but GPL lost and re-gained the 50sma Thursday with a nice reversal too. Anyone that had stops at the 50sma lost position.

XRA – XRA is actually holding up very well through out the Miners selling off. This was a solid buy on the 200sma, and since it didnt even break down, it may be one that you want to own at a dcl.

BTG – This is the Miner that held up very well , it was even at 2016 highs last week.  Suddenly BTG lost a lot of ground in just a couple of days. Wednesday it too  reversed higher at the 38% retrace. Nice volume. I would have liked to have seen a solid tag of the 50sma, but it turned at the 38% level.

Conclusion: There is no other way to say this other, this is an opportunity to buy low(ish) risk, because the stops are fairly close to current prices, but it is a bit riskier than usual due to the set ups.  Stops immediately below yesterdays low  keep losses small.  Potential gains are good if the reversals lead to higher price with some follow through.  We discussed risk , however, due to the USD strengthening and the idea that GOLD & SILVER MIGHT still have their DCL ahead of them in the near future, since the day count is in the early 20’s.  I could conceivably see Gold  bounce to say day 24,  and then just drop to day 30 onto the 50sma as a dcl too.  We have seen dcls in the early 20 day count, but they are often day 26-30 and deeper than what we saw yesterday.  Time will tell, right?

That said, it is up to the reader to decide.  Do I start a small position and add if it plays out bullishly? Should I just wait and see if there is follow through, and go heavier when I am more confident?  Should I play it safe and just stay on the sidelines in this sector until things finally become more clear, and maybe look for some trades in other areas?

Speaking of that, The Metals stocks got  a lift with the talk of infrastructure repair and economic growth attempts. Many stocks like CLF, VALE, X, STLD, HBM, FCX, ETC took off ( some pulled back a bit into the close, but they may be good set ups with a nearby stop). For example:

AA – AA popped and held those gains into the close. Since Trump got in office, notice that it has been running strongly for 1 month, then consolidating, running strongly for a month, consolidating…time to run for a month?

TGB –  TGB has been a strong runner and now has had time to consolidate. I bought this one in the morning when it pulled back a bit, and it closed near the highs of the days. This could break out and run from here under these conditions, but normally I would think that it will tag that 50sma inside of this wedge before breaking out.  If it breaks out higher, I will add to my position. a drop to the 50sma may also have me adding.  I like it as a copper stock and it has done well with the infrastructure talk and inflation.

UUUU – This may or may not be ready to just run higher from here,  It is on a support level of the 50sma, so a stop could be placed right below that area.  It also could be in a consolidation stage and could just bounce around a bit more, but again, it is holding at  the 50sma so far.  That offers a low risk entry if you have a stop under support.

It is hard to know ‘exactly’ where we are at with Precious Metals and the USD.  Gold is near the highs and overbought, the Miners sold off and near oversold.  Both reversed Thursday and the USD put in a higher high. Are the lows in place for Miners and that was a dcl? Is it just noise in the middle of a sell off, and the real dcl is ahead as the USD rises a bit more?  Tough knowing at this point in time.  As things play out further, we will get clarity.  So if you are conservative or unable to be in front of the computer, you may want to keep position size small in this area until it plays out a bit more.  We may need to look in other areas for some trade set ups that are clearer .  Enjoy your Thursday trading.

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~ALEX