The Commitment of Traders (CoT) report reveals surprisingly good traction on the move between $1,128 and $1,198 (last Tuesday’s reporting date). Specs went net long 33,562 contracts for the $70 lift and ended at about 61,000 net long.

This great traction is what set the stage for Wednesday’s and Thursday’s fireworks. If gold Eagle coin sales so far in February are an indication, western (not just eastern) physical gold demand helped with the traction in the paper synthetic Comex “market”.

If specs are now about 100,000 net long, that’s still constructive. In a bull market with a major sentiment shift, a 100,000 plus reading can go on for months as the price of gold (PoG) grinds higher.

The gold saucer breakout is a thing of beauty. The channel and bull flag pattern can also be replicated, as I described in the GDXJ chart below. The 10 and 20 DMA will start to catch up time wise to price over the next week. The synthetic paper boys may attempt to take out the channel, which would be par for the course. If so, treat as a head fake and bear trap (similar to Wednesday’s action in GDX and GDXJ) and employ your reserves at wherever the DMAs are at that juncture. I have moved to 20% cash on a trading basis.

On Friday as the PoG pulled back, the positive action spread to the smaller micro-cap development plays, where the hyper-value is. GDXJ and GDX registered nice up days. Gold miners' (GDX) average all in costs are $866 as of the third quarter and likely even lower now. So $1,250 PoG and $30 oil is a greatly profitable operating environment. Little wonder that the precious metal stocks are outgunning the metals. Even after the lift, the “market” is assigning no optionality value to most of these shares.

The GDXJ is in a blastoff channel. When the reaction to relieve sentiment comes, it should hold in the lower portion of the power trend channel and create a bull flag. Last week’s bull flag on Wednesday was fast and furious. Traders can use the lower channel for entries and the upper channel for profit taking.