Gold Miners: Were Upswings Just An Exhausting Sprint?

Senior Miners: GDX ETF

Moving on to the GDX ETF, the senior miners were unable to hold the upper trendline of their corrective zigzag pattern. Similar to the price action in late 2020/early 2021, the GDX ETF rallied slightly above the upper trendline of its roughly one-and-a-half-month channel before eventually rolling over. More importantly, though, the GDX ETF’s failure in early 2021 ended up being a prelude to the senior miners’ severe drawdown.

Please see below:

Furthermore, with the senior miners likely to peak in the coming days, the GDX ETF is poised to move from the right shoulder of its bearish H&S pattern. Following in the HUI Index’s footsteps, the GDX ETF’s correction back to the high of its left shoulder signals that the upward momentum has likely run its course.

If that wasn’t enough, the GDX ETF’s stochastic oscillator is also flashing a clear sell signal. If you analyze the two red arrows positioned at the bottom of the chart above, you can see that the black line has once again crossed the red line from above. As a result, the GDX ETF’s days are likely numbered.

Junior Miners: GDXJ ETF

As further evidence on this bearish scenario, let’s take a look at other proxies for the mining stocks. When analyzed through the lens of the GDXJ ETF, the junior miners remain significant underperformers.

Please see below:

To explain, the GDXJ ETF is now back below its late-Feb. highs - please note how weak it remains relative to other proxies for mining stocks. Unlike the HUI or the GDX, the GDXJ didn’t move visibly above its late-Feb. highs and it had already invalidated this small breakout.

Moreover, the GDXJ/GDX ratio has been declining since the beginning of the year, which is remarkable because the general stock market hasn’t plunged yet. This tells us that when stocks finally slide, the ratio is likely to decline in a truly profound manner – perhaps similarly to what we saw last year.

So, how low could the GDXJ ETF go?

Well, absent an equity route, the juniors could form an interim bottom in the $34 to $36 range. Conversely, if stocks show strength, juniors could form the interim bottom higher, close to the $42.5 level. For context, the above-mentioned ranges coincide with the 50% and 61.8% Fibonacci retracement levels and the GDXJ ETF’s previous highs (including the late-March/early-April high in case of the lower target area). Thus, the S&P 500 will likely need to roll over for the weakness to persist beyond these levels.

Also, contrasting the GDX ETF’s false breakout, both the HUI and the XAU indices ended the week below the necklines of their previous (based on the rising necklines) bearish H&S patterns. Moreover, if you analyze the right side of the charts below, while both the HUI and XAU indices initially bounced above their necklines, investors quickly sold the rallies.

Mirroring the GDX ETF, both indices are also eliciting sell signals from their stochastic oscillators. And with the GDX ETF the only wolf still howling at the moon, expect the senior miners to follow the rest of the pack lower in the near future.

Also, eliciting bearish undertones, the HUI Index/S&P 500 ratio has recorded a major, confirmed breakdown. And with the ratio nowhere near recapturing its former glory, it’s another sign that the GDX ETF is a significant outlier.

Please see below:

When the ratio presented on the above chart above is rising, it means that the HUI Index is outperforming the S&P 500. When the line above is falling, it means that the S&P 500 is outperforming the HUI Index. If you analyze the right side of the chart, you can see that the ratio has broken below its rising support line. For context, the last time a breakdown of this magnitude occurred, the ratio plunged from late-2017 to late-2018. Thus, the development is profoundly bearish.

Playing out as I expected, a sharp move lower was followed by a corrective upswing back to the now confirmed breakdown level (which is now resistance). Mirroring the behavior that we witnessed in early 2018, after breaking below its rising support line, the HUI Index/S&P 500 ratio rallied back to the initial breakdown level (which then became resistance) before suffering a sharp decline. And with two-thirds of the analog already complete, the current move lower still has plenty of room to run. Likewise, the early-2018 top in the HUI Index/S&P 500 ratio is precisely when the USD Index began its massive upswing. Thus, with history likely to rhyme, the greenback could spoil the miners’ party once again.

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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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Thomas Callahan 1 month ago Member's comment

You have been on the wrong side of the trade for a while now. At what point do you reassess your charting?

Przemyslaw Radomski, CFA 1 month ago Author's comment

I am reassessing my charts each day, and if bigger moves take place, many times per day. And... have I really been on the wrong side of the trade? I mean - do you know when I entered short positions and (profitably closed long ones) and what instrument I used? The positions that I entered (and discussed in my Gold & Silver Trading Alerts) were profitable shortly after entering them, and currently they are not, but they are very close to being so. Based on today's pre-market decline in gold, they will likely be profitable once again very soon, perhaps as soon as during today's session.