NFTRH; Dialing in the Precious Metals

Finally, we have seen the obvious (what most people will now take note of) kickoff to a short-term correction in the precious metals.  Depending on the fundamental picture, we can plan on taking advantage of a buying opportunity as we have been noting over last couple of weeks.

As for the fundamentals, we need to see gold move upward vs. the headline US stock markets like the S&P 500, Dow and Nasdaq.  We also need to see ‘junk vs. quality’ credit spreads remain bearish and the banks under perform.  Don’t worry so much about what the US dollar is doing.  It can rise with the Gold-Silver ratio if liquidity becomes a problem and that would ultimately fuel gold mining fundamentals (ref. Q4, 2008).

So assuming fundamentals come in line (we will continue to track the progress each week) I wanted to put up daily charts of the mining ETF’s along with gold and silver.  Speaking of which, with Silver’s hard drop yesterday I sold the rest of my puts along with some DSLV* that I had added earlier in the week as silver just floated, waiting to be harpooned (as the analysis had been expecting due largely to the CoT data and the silver-gold ratio at a limit).

With all that said, the charts…

GDXJ broke a little neckline of sorts yesterday.  This will get the chart jockeys going.  MACD is rolling over and RSI just went red.  Look for a 50% (39.50) or more likely in my opinion 62% (37-38) retrace toward the SMA 200, where there is notable support.  I hold JDST* against a few miner positions.

gdxj

GDX has not broken down from its little bearish pattern and so the neckline is green and technically considered support.  If GDXJ is a leader, then it should follow suit.  But with gold already hammered toward a projected support area, we’ll hold open the possibility that yesterday was a ‘one and done’ and that the miners have held relative strength to the metals.

But that is not the favored view, given gold bugs’ penchant for bi-polar emotional swings.  If the neckline goes, the next two support levels are noted, with the 24 area being favored (roughly equivalent to HUI 220-225 support we have noted as key).  MACD is rolling but RSI is still positive.

gdx

SIL, like GDXJ is breaking the neckline of a small pattern.  If the breakdown holds, it should go to the yellow shaded areas, with the mid-12’s preferred.  I am short this ETF*.

sil

Gold is self-explanatory.  It is closer to preferred support than the miners so if the sector is to continue to correct but remain viable (as expected), then the miners would probably have to do some downside catching up to gold because gold has less room to fall without getting broken.

gold

Silver dropped hard to a potential support level, so I covered all puts/shorts*.  But this is the wilder of the metals and 19.75 is quite doable.  It would not be broken at that level, but it would be a hell of a cleaning out of the momo’s (i.e. large speculators).  If the sector looks to continue grinding out a correction, risk tolerant people might try a short at 20.75 on any bounce (with a stop loss above 21).

silver

Bottom Line

We were prepared for a correction and now here it is.  Mini or maxi?  I expect it to be a healthy clean out of the unsavory sponsorship (like it or not, the precious metals always attract unsavory characters) polluting the investor base.  It was right there in the large speculator longs in the CoT data.  It was right there in the headlines at the gold websites, with the usual promoters promoting as usual.

We are looking for a combination of technicals and fundamental improvement.  The biggest one left open is the Gold-SPX ratio**.  Also Gold-CCI (commodities) needs to resume improvement.  It is entirely possible that the Gold-Silver ratio will rise and take care of these issues with liquidity coming out of markets for a summer correction (at least).  That would be fundamentally positive.

But let’s patiently just stay on top of this and take what the technicals and macro fundamentals give us.

* Why do I not send alerts about shorting?  Because I do not have a crystal ball, because I do not believe in putting subscribers in harm’s way and because the act of positioning bearish for an expected short-term correction had been very frustrating until yesterday.  So I remind you that NFTRH is not a service that pretends to be a trading captain or trading coach.  Over trading these markets is a fool’s game.  We continue to focus on patiently managing macro changes and the longer trends that come from these changes. 

**The declining yield curve is an issue as well, but that has been subject to so much official manipulation over the last couple of years I am just not sure to what level its message is distorted.  So it is on the side burner for now, although subject to ongoing review.