What Underperforms Gold And Heralds More Declines?

With the gold miners underperforming gold, and gold underperforming the USDX, it was only a matter of time before the house of cards came crashing down.

The writing has been on the wall all along with signs for all to see. On Jan. 5, I warned that the GDX was approaching an inflection point in the following way:

The GDX ETF managed to rally above its 50-day moving average – just as it did at its November top. Moreover, please take note of the spike in volume that we saw yesterday. There were very few cases when we saw something similar in the previous months, which was at the November high and at the July high, right before the final 2020 top. The implications are bearish.

And despite Friday’s (Jan. 8) 4.82% sell-off, the GDX’s last hurrah is likely to end with even more fireworks.

Please see the chart below:

(Click on image to enlarge)

ChartDescription automatically generated

Figure 1 - VanEck Vectors Gold Miners ETF (GDX), GDX and Slow Stochastic Oscillator Chart Comparison – 2020

With technicals foretelling the decline, many bullion bulls closed their eyes to the plethora of warnings signs that you can find in the previous Gold & Silver Trading Alerts.

For example:

  1. A huge volume spike in the first session of 2021 was very similar to what we saw at the November 2020 and July 2020 tops – this heralded declines.
  2. The GDX’s stochastic oscillator bounced above 80, mirroring similar readings that preceded five pullbacks since September.
  3. Arguably the most important indication that keeps on flashing the very bearish signals, the GDX’s underperformance relative to gold remained intact.

In addition, the GDX is on the cusp of forming a head and shoulders pattern. If you analyze the chart above, the area on the left (marked S) represents the first shoulder, while the area in the middle (H) represents the head and the area on the right (second S) represents the potential second shoulder.

Right now, $33.7-$34 is the do-or-die area. If the GDX breaks below this (where the right shoulder forms) it could trigger a decline back to the $24 to $23 range (measured by the spread between the head and the neckline; marked with green).

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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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