GDX, GDXJ: A Fall Before The Carnage

Gold holds tight, but this is rather an anomaly – after a fall, the mining stocks will be sent to slaughter. They are even declining on their own now.

Finally, after a few weeks of relatively small changes and telling you that whatever minor happened (or what didn’t happen) was a confirmation of the previous forecast, now I can report to you multiple interesting developments. And yes, they also confirm the previous forecast, and you already saw the results, as your trading account got bigger once again; but this time, the clues are even more decisive and more varied.

Let’s jump right into the charts. This time, we’ll start with the general stock market, which finally moved lower in a decisive manner.

That was the third time when the stock-based RSI moved below the 70 level, which – based on the similarity to early 2020 – might be signaling that the top for this rally in stocks is already in. If it is indeed in, then the really bad times for the mining stocks and silver have just begun. Their yesterday’s performance seems to confirm that.

If it was not the final top for the stock market, then… The precious metals sector is likely to slide anyway because of what’s going on in the USD Index, and because the mining stocks’ underperformance provided us with not one, but multiple screaming sell signals in the previous weeks. Let’s take a look at the USDX.

During yesterday’s session, the USD Index moved above the neck level of the broad (~yearly) inverse head-and-shoulders pattern and then it corrected somewhat while still closing the day above the neckline. And it’s been moving slightly higher in today’s session, at least so far.

This is a very bullish price action – the USDX’s breakout was not accidental, nor was it based on geopolitical news (the latter tends to trigger temporary moves that are then reversed). Additionally, it was preceded by a consolidation. Consequently, it seems that this breakout has a huge chance of being confirmed and followed by another sharp rally. The previous highs at about 94.5 are the initial upside target, but based on the inverse H&S pattern, the USDX is likely to rally to about 98.

Consequently, what just happened (the breakout above the formation’s neckline) has really bullish implications for the U.S. currency. And since the latter tends to move in the opposite direction to gold, silver, and mining stocks, it’s also very bearish for them.

Mining Stocks

Interestingly, so far, gold didn’t do much. It declined visibly yesterday, but it then came back up before the end of the session. At the moment of writing these words, gold futures are trading just $1.50 below Friday’s (July 16) close. No wonder – even though the USD Index is completing its major, inverse H&S formation, it didn’t move significantly in nominal terms.

This is incredibly exciting for those who hold short positions in the mining stocks because this means that the huge impact falling gold will likely have on the miners is still ahead. And miners declined significantly anyway!

Before moving to the mining stocks, please note that the back-and-forth trading right after the first move lower is normal for gold. I marked those cases with ellipses. Consequently, the fact that gold moved back-and-forth now doesn’t make the forecast for gold bullish. Conversely, it’s a normal course of action right before a powerful slide.

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Disclaimer: All essays, research and information found on the Website represent the analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong ...

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