The very fact that I am producing my Men Who Stare At Charts shtick means that I am practicing “pattern recognition”, staring a would-be pattern that could be a Head & Shoulders top. “Pattern recognition”, as TAs who want you to think they are very technical indeed, give the act of staring at a gross set of candles and being made nervous or excited by it a classy title. “Pattern recognition”, one of the more suspect aspects of TA, in my opinion.
That said, my job is to report what I see and since we have a thing that looks like a right shoulder forming on GDX and a neckline that is being pierced after the upper gap fill and a new drop below the SMA 200, and since the macro may be changing with the 10-2 yield curve steepening I am actually hopeful we may be starting the new macro phase sooner, not later. Gold and the gold miners lead, remember. So even if commodities and stocks continue to rise, if GDX were to take a terrible decline here it would normally be a leader to the rest of the markets.
Remember how often the gold miners lead bullish inflationary phases? Well, they tend to lead deflationary phases as well. Right now I am just riffing around a bearish potential for gold stocks. It sure does look like GDX is going to fill the sub-28 gap, which we have anticipated all along. But what if “pattern recognition” proves to actually be a thing in this instance? Well, the pattern targets the 21 area and folks, who do we have lurking down there at 22? Yes, Mr. seemingly un-fillable gap, that is who.
I am taking that gap more seriously now, especially since we have been nothing since the spring that gold mining fundamentals have been degrading. Current view for this limping uptrend has been for a target of 40. But the big view on a real bull market for gold stocks is ‘buy on the post-inflationary wipe out’ in markets, which the yield curve and now the miners themselves may possibly be signaling.
My job is to report what I see. This is what I see today. Not at all a prediction, but certainly a possibility. With the fundamentals doing poorly I don’t like the risk here, quite frankly, and will probably drop a hedge in until GDX either takes back the converging moving averages or flat out tanks.
As yet, GDX holds a higher low to the June-July lows. A few ticks lower and upper gap fill or not, the odds increase that the 22 gap may also fill. We’ve kept it on watch for a reason and here is one interpretation of a possible reason.
As you yourself would say, It is what it is. And the is of the what-is sure looks like a H&S to me as well. All I can say is, crap. Crap crap crap.
It’s not going to be crap if it plays out to the downside and it’s time to buy for fundamental reasons. I’ve been uneasy on the rally since the funda turned bad. I’d rather get the real buy opportunity sooner rather than later. Gold stock pumpers far and wide can be disappointed. I won’t be.
Currently, I cannot look at the gold stocks without looking at gold. One can tout all the fundamental reasons why gold could/should (two words I do not like using) trade higher and the mining stocks beneficiaries of such a trade. Sentiment is everything and currently sentiment for gold and gold stocks is not constructive. Investors need to put money in gold stocks for them to rise and I do not see that happening in a big way until gold holds above the psychologically important 2000.00 level for a solid while. The institutions will move toward gold as the macro unravels bit by bit but of course we know that all correlations go to 1 during a deflationary scare so we’ll see the pressure first on gold down then it leads up and out. It will take a while from then before the generalist investors move there once they see hyped AI stocks with no earnings tank and their high flying Techs revert to sane valuations. Then the producers with at least a couple million ounces, exploration upside and free cash flow will rise. First gold and then the stocks.