With the sector internals pulling way back from overbought and overdone, the BPGDM is frothy no more. That is no indicator of a bottom, but it is an indicator that we have shed the risks implied by the previous unyielding upside momentum.
Internally, the GDX/Gold and SIL/Silver ratios have taken a big hit. Again, normal and, if there is not something more severe than a sharp correction afoot, healthy. One indication of further trouble could be if SIL/Silver makes a lower low to the July 18 low.
Meanwhile, HUI is hovering just above support associated with the 50 day moving average. The 38% Fib is below at 530, and I would not discount the potential that could be hit. But as yet, the correction is only doing the normal thing; a much needed test of the SMA 50.
As a side note, Stockcharts.com does not include the 23% Fib in its tools, but TradingView does. Huey hit its 23% Fib yesterday. Just a minor FYI.
With Miners’ earnings upcoming (Newmont tomorrow) and the FOMC all but assured to cut the Funds rate (according to the CME wise guys and just about everybody else), there is a lot of energy in the air. I think this is an opportunity to buy.
But here I want to remind you that a much more unpleasant outcome is possible. That would be a broad market tank job, selling the news of a very key cut in interest rates. For most of the last year+ we’ve been tracking this chart that has refused to yield a bear market in stocks despite a gross example of conditions that preceded the last two real bear markets.
Yes, I know that people who want to be bullish can expand the view to the 1980s and find plenty of examples when Fed rate cuts signaled further bull. But for safety sake, I’m sticking with this chart of a more modern era.
That is big macro. For shorter-term signals, let’s keep an eye on a new divergence by the VIX to the S&P 500. VIX already popped last week, providing fuel for more bull. But it’s only settling back to its divergence trend line. Positive divergences by the VIX have often eventually brought on market corrections, as illustrated.
Bottom Line
So the bottom line is that the precious metals are on a sharp and healthy correction, that I think is a buying opportunity. But the spanner in the works of that theory could come if the broad market also rolls over at this time of much market energy (FOMC).
If that were to be the case, the hit to gold and the precious metals (AKA the broad rally leaders) could be seen as the first move in a broad market crash. Sorry for any alarm, but I lived through, managed and ultimately survived and prospered in the crash of Q4, 2008.
We should be aware of all rational possibilities without being emotional about it.
