Mining stocks are weaker than many think. This, plus fresh sell signals from NEM and FCX paint a coherent, and exciting picture.
Exciting because we (I mean my subscribers) are already positioned to take advantage of what’s very likely to arrive shortly. And given today’s almost 6% slide in FCX, our profits are growing very fast. I know it’s exciting, but please hang in there – the profits are likely to grow much more before this trade is over.
Let’s start with the last two signals that I mentioned. I wrote quite a few things on copper’s bearish outlook recently, and FCX – being a copper and gold producer – reacted accordingly.
The particularly important technical detail is that FCX invalidated the move above the declining resistance line. On Jan. 17, I wrote the following on copper and FCX:
This is the kind of confirmation that I wanted to see, and since we have it, I think that re-opening the short position in FCX is justified from the risk-to-reward point of view. Some might consider shorting copper itself, but I think that FCX provides a better risk-to-reward opportunity.
It’s after a large head-and-shoulders top pattern, and it’s already after the rebound that often follows the completion of such a pattern. Yes, we did see a small breakout above the declining resistance line, but given what’s happening in copper and gold (after all, FCX is a producer of both copper and gold), it seems that this breakout will be invalidated shortly, leading to further declines.
It turned out that I wrote the above at copper’s top.
Yesterday’s price action is in perfect tune with the part that I put in bold. And yes, it’s likely to lead to further declines, as the invalidation of the breakout is a sell signal on its own. In fact, you already see this taking place as FCX plunged to new yearly lows in the first minutes of today’s session.
If you’ve been hesitating to short FCX, in my opinion, this is a confirmation that you’ve been waiting for.
NEM, one of the key gold stocks, has been particularly weak in the previous months, so when it recently caught some tailwind, I described it as being a “top is near” signal. What we saw yesterday serves as a confirmation. NEM just invalidated its small move above its 23.6% Fibonacci retracement and the Dec. 2024 high. Just like it was the case with FCX, an invalidation here serves as a sell signal.
The GDXJ ETF moved a bit higher, and yesterday’s intraday high was just $0.20, away from the $48 level, and given today’s early decline, it looks like the breakout above the declining resistance line could be invalidated any hour now. Compared to the resistance line, GDXJ was overbought, and not it seems that the market is turning south again.
Quoting my previous comments on it:
Finally, the GDXJ moved to $47.47 yesterday, which is right in the middle of my previous target for this rally. Even if we [see a] move to $48 or a bit above it, GDXJ will remain in the target area, so I’d like to clarify that such a move higher would NOT change the outlook here.
Please note how the GDXJ has been making lower highs since October while gold has been making higher highs. This is one of the reasons why we’re not shorting gold here, but mining stocks. We’re positioned to take advantage of miners’ medium-term weakness relative to gold.
So, yesterday’s intraday rally didn’t change anything.
What is interesting is that we saw a black candlestick – the price moved higher in terms of the daily closing price, but the daily close was below the day’s opening price. Those sessions happen rarely, so they can be quite telling. I marked the previous ones with orange arrows, and they tend to happen in the middle (more or less) of the rally or at / right before its end.
Given that the GDXJ moved very close to its 50% Fibonacci retracement and then declined – even though gold didn’t, and given the sell signals from FCX and NEM, it seems that the top might be in.
Please note that in relative terms, miners have been very weak recently. In particular, yesterday’s session, where gold moved visibly higher, but miners didn’t, was important, but it was not the only case when miners underperformed.
In reality, miners have been underperforming of half of this year, even though it’s not apparent at the first sight. It is only when one factors in the performance of the general stock market (which also tends to have an impact on miners’ strength – they are stocks are after all).
Please focus on the dashed lines on the above chart. Gold doubled the previous rally, but miners didn’t. The rally is not that small, though, so one might think that miners’ performance is at least decent.
It isn’t. During the late-Dec. – mid-Jan. rally in gold/GDXJ, stocks barely moved (just a small rally overall), but in case of the mid-Jan – yesterday rally, stocks truly soared. And yet, miners didn’t rally as much as gold did. If miners were just “neutral”, given stocks’ strength, they “should have” outperformed gold. Nothing like that happened – the opposite did.
Consequently, yesterday’s weakness was the cherry on the weakness-flavored cake, and as such it really matters.
Therefore, today’s declines in gold and silver don’t seem accidental.
Gold moved briefly below $2,750 per ounce, and it invalidated the move above its December high (which was when we first shorted NEM), and in the overnight trading, silver invalidated its move above the declining resistance line – again, in tune with my yesterday’s comments:
Silver is up, but it’s not as high when it was when we took profits from the previous long positions. It is another breakout, though. Will it this one be invalidated as well? That appears likely to me.
Please note that silver often pauses after the top and before the slice. That’s how it topped in October 2024, and in July 2024. Consequently, seeing a third top here is rather normal.
And what is the USD Index doing amid all this?
It reversed after touching the 23.6% Fibonacci retracement level in tune with my yesterday’s comments:
“The USD Index almost reached its support provided by the 23.6% Fibonacci retracement level, which means that it might be ready to soar once again.
The RSI Index based on the daily prices supports that outcome. In each case when the RSI was this low, the USD Index bottomed while gold, silver, and miners topped (or were already after the top). I marked the recent cases with red circles.
The chart from a different provider shows that the USDX is even closer to the 23.6% Fibonacci retracement, and it could be easily reached as early as today.
This means that gold’s move above its previous short-term highs could be invalidated shortly.
Please note that the December top formed slightly above the previous top. Consequently, seeing a breakout here might be a way in which history is rhyming – this could be the way gold is topping here – through a fake breakout.”
The chart from a different provider shows that the USDX is even closer to the 23.6% Fibonacci retracement, and it could be easily reached as early as today.
This means that gold’s move above its previous short-term highs could be invalidated shortly.
Please note that the December top formed slightly above the previous top. Consequently, seeing a breakout here might be a way in which history is rhyming – this could be the way gold is topping here – through a fake breakout.
So, did the USD Index bottom here? Nobody can tell with certainty, but it certainly seems to be the case.
All in all, the short-term outlook for mining stocks appears bearish at this time, and it might be the same for gold as well. I wouldn’t necessarily short gold here, but the trading positions that we have open remain very much justified from the risk-to-reward point of view – the outlook for them is excellent, in my view.
Thank you for reading my today’s free analysis. The full version includes the exact profit-take levels, and my subscribers will also receive an intraday Alert if anything changes. I encourage you to become our subscriber and get those benefits while trade is still open. Alternatively, if you’re not ready to subscribe yet, I encourage you to sign up for my free gold newsletter today.
Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief