Let’s put the recent price moves into perspective. The short-term outlook and trading possibilities are one thing, but the big trends are another.
In today’s free analysis, we’ll focus on the latter, while the former is currently available to our premium Gold Trading Alert subscribers only.
Gold stocks to other stocks also clearly show how important and big the recent “strength” in the mining stocks was.
In short, both are nonexistent. The ratio between the HUI Index (a proxy for gold stocks) and the S&P 500 Index (general stock market) is testing its recent lows.
It takes just a little push for the ratio to break below its 2-15, 2018, 2021, and 2022 lows. This is very bearish, because after that breakdown, there’s no significant support all the way down to the 2000 low close to 0.025. This means cutting gold stocks’ prices in half IF the general stock market stays at its current levels, and it means even bigger declines in gold stocks, if other stocks do decline.
Comparing gold stocks to gold reveals we saw another small correction within a long-term downtrend. Ever since mid-2021, all attempts to break above the 200-day moving average (marked with red) were followed by invalidations and declines in the precious metals sector.
This is bearish, and the same goes for the fact that corrective upswings were smaller each time when the ratio moved from about 0.1. The 2016 bottom was followed by a sizable correction, the one from 2020 was smaller than the one that we saw in 2022 was even smaller, and this year’s correction is tiny in comparison.
The implications for the following months are very bearish, as when the ratio finally breaks below the rising support line, it’s likely to decline much lower – as low as the 2016 low or even lower.
Meanwhile, the stock market is approaching its all-time high, and while Paul Rejczak remains cautiously bullish, he’s preparing to exit his long position, and I agree that stocks look very toppy here. My yesterday’s comments on that market remain up-to-date:
The RSI based on the S&P 500 Index was just extremely overbought – more so than at the 2022 top. Given yesterday’s decline close to the end of the session it seems quite possible that the top is in. And if it’s not, it’s likely that the top is at hand anyway, as the all-time high is unlikely to be taken out given this kind of overbought status of the market.
There are some fake rallies out there in individual stocks as well, including individual oil stocks (and here’s today’s example). This could be viewed as another indication that the entire market is about to turn south.
The full version of today’s analysis - today’s Gold Trading Alert -is much bigger than what you read above, and it includes not only the initial downside target for the GDXJ (level from which juniors could rebound) but the entire price path that the GDXJ is likely to take (with specific target areas (for declines and rallies). I encourage you to subscribe and read those premium details today. Of course, as my premium subscriber, you’ll get the intraday Alerts whenever the situation requires them – that’s one of the parts of the service that my subscribers tend to enjoy the most.
Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief