The longer the correction has gone on the more it has moved from the look of a minor topping pattern to a potential consolidation pattern, with the overbought readings addressed through both price and time. Personally, I feel well corrected even though I have retained the majority of profits. That is because of the time element and the mental grind of hedging, balancing and analyzing this thing since August.
It’s a volatile but orderly correction that has retraced 38% of the previous rally and not even touched the first short-term support area yet. The problem for a bear or for those of us who’d like a buying opportunity at HUI 180 is that for a long while now, every gold bug and his brother has known about the correction. Back in August they were greedy. In September they were still spirited. Here in late October, they’ve been dulled and muted at best. That’s not bearish.
Bottom line for me was that it was time (per the Trade Log yesterday) for me to take the profits on the JDST hedges and while keeping a couple miner shorts, let gold/silver stock holdings balance broad market holdings to a degree. I may go back to a hedged stance, but that is not my wish and will depend on the market activity and view moving forward. Again, time. The correction is maturing.
GDXJ is just too close to its 200 day average and major support for me to feel too bearish about it. This is the area (junior miners) that I was short via JDST. Much risk has been bled out of the gold and silver stocks and the trends are still up (not to mention that the fundamentals are still intact, though in consolidation). So for the moment at least, it’s time to be a big boy and take what the market gives without chronic hedging.
So at this time I am using broad market longs with a minority of shorts, gold/silver longs with a minority of shorts and most of all cash equivalents (SHV and increasingly, SHY) to balance and retain profits as best I can. The gold sector can still drop or grind downward, but it feels like the orientation should be toward buying opportunities upcoming. After all, how bearish does this weekly chart of GDXJ look to you? Not very, does it?
Bottom Line
Risk vs. Reward has been fixed on the sector. Price can still decline but we are no longer in a high caution zone for gold and silver stocks. It is time to be watching for buying opportunities (one of several that come to mind, just as an example, is my holding OSK.TO, which has been beaten down to a slight higher low within its uptrend). That’s the kind of thing you buy on corrections. How much risk is left in this stock compared to July and August? If the sector is to go bearish and/or OSK.TO is to lose its uptrend, that’s another story. But if the series of higher highs and higher lows is to remain intact, it’s been taken down far enough now. Again, it’s not a recommendation. It’s an example. A lot of junior miners/explorers have been well hammered.
