During sharp rallies, it’s nearly impossible to convince investors that this move is about to end. And yet, that’s exactly what is likely.
That is exactly what the GDXJ chart and the position of the RSI confirm.
The RSI indicator moved well above the 70 level, and this is something that happens very rarely. I zoomed out the chart that I usually feature so that we can see all the key moments in recent history when we saw something like that.
I marked those moments with red arrows.
Yes, that’s exactly how the 2020 top formed – with RSI well above 70. Also, let’s keep in mind that the GDXJ ETF top formed at about $62.
Since 2020, we have seen this massive sell signal from the RSI four more times. It accompanied major tops three times, including the 2023 top. The 2022 signal took place shortly before the 2022 top.
The fourth time when we saw this massive sell signal from the RSI based on the GDXJ ETF is right now.
Is this time any different?
There’s a small chance that it might be different, but if it was really the case, the GDXJ would be showing actual strength relative to gold. You know, like, moving above its previous highs before gold does something like this.
Do you know what gold just did?
On Friday – so when the GDXJ closed below $40, the yellow precious metal closed very close to its 2020 high.
It’s obvious that mining stocks don’t outperform gold, and their relative performance is very weak in the medium run.
This further increases the odds that the massive top in the mining stocks is being formed.
Looking at the gold futures chart itself, we see that it just jumped to new nominal highs (in real terms, it hasn’t) in the overnight trading, but it already erased a large portion of that rally, forming a shooting star reversal pattern. Of course, there are still many hours before the session is over, but the move back down could easily continue from this kind of setup.
Invalidation of the move above the previous highs in gold will serve as a massive sell signal that will be clear to everyone. If you’ve been wondering what the trigger for the next huge move could be lower – gold’s upcoming invalidation is a very likely candidate. The GDXJ-based RSI already provided more than enough of the required context.
Staying focused on what’s likely here based on technical indications is not easy. It’s very difficult. And yet, discipline like that was important during many of our previous trades (and we’re on a streak of 11 realized profitable – unleveraged – trades). It seems that the medium-term decline is about to resume any day or hour now and that this is likely one of the worst moments to be bullish on mining stocks. The previous moments when GDXJ-based RSI was well above 70 were excellent shorting opportunities, and the same is likely also this time. Stay strong.
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Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief