Today is the day when we’re already seeing profits in our new long position in silver, and tomorrow will be a big day for a different reason.
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Moving to silver, it’s up by about 1.4%, while gold is up by less than 1% - at least at the moment of writing these words.
Silver appears to have formed an interim bottom at the neck level of its previous head-and-shoulders pattern (in terms of the daily closing prices) and at the late-Dec. high. Technically, another short-term move up appears to be in the cards.
The general target area is quite wide, but my Gold Trading Alerts include a very specific (to the penny) profit-take level for this trade. And, while I can’t promise any kind of performance, knowing and not knowing the key details is what could make the difference between ordinary and extraordinary trading results.
In yesterday’s analysis, I pointed to the invalidation of the H&S pattern in the S&P 500 Index as one of the key bullish signals and that remains up-to-date.
Despite the intraday move lower, stocks ended the day in the green, thus clearly invalidating the head-and-shoulders pattern and flashing a buy signal.
How high can stocks rally here?
Well, as it might be the case that the big, medium-term rally is over, I don’t necessarily see stocks at new highs in the following weeks. Instead, we might get something similar to the previous short-term corrective upswings. This one could take stocks to the 5,900 – 6,000 area based on the declining resistance line and the 38.2%, 50%, and 61.8% Fibonacci retracement levels. Yes, I know that this target area is quite broad, which is (one of the reasons as to) why there will be more factors that I’ll be considering when taking profits from the longs in silver other than the situation on the stock market.
Of course, silver’s price itself, and gold’s price will be important factors.
It will be interesting to see where gold tops here – and if it manages to rally to new 2025 highs. If gold fails to rally above the previous January highs but silver soars above them, it will serve as a great sell signal.
As I emphasized yesterday, miners were very strong on a relative basis and the volume on which yesterday’s rally materialized was not low. This tells me that the move higher was not fake and that it is indeed a bullish sign for the short term (!).
Will the GDXJ rally above its December high? I doubt that, but it might correct to the 50% retracement and move to $48, for example. And then, as everyone and their brother will be cheering based on the breakout above the declining resistance line – GDXJ could invalidated this breakout, leading to another price crash.
This scenario, in which silver soars above its December highs while miners (and gold) fail to do so, seems a quite realistic expectation as to how this rally could end. Of course, there are many ways in which it could all develop, and I’ll keep my eyes open for any changes, but this is one of the more likely scenarios in my view.
Finally, I’d like to draw your attention to the situation in FCX and copper as it emphasizes something important. Namely, this move higher is just a correction within a bigger downtrend in commodities and precious metals.
Bull markets in commodities are characterized by strong commodity stock performance relative to the commodities themselves. Strong mining stock performance vs. gold is just one of the examples.
The thing is that what we see in copper and FCX (which is a big copper producer) is exactly the opposite to the above.
Copper futures moved above their December high and appear to be on their way to rally to their November high or the declining resistance line based on the previous highs.
But FCX?
FCX is not even close to its December highs, let alone the November high. The underperformance is clear and – and I’m not saying this just because it’s a good-looking word, but deliberately – dramatic.
FCX barely moved above its late-December high. When you get back to the copper chart and see how much above that late-Dec. high copper is, it becomes clear just how extremely weak FCX is.
This remains to be an excellent shorting candidate, and we’ll likely get back to the short position in it within the following 0-4 weeks.
Of course, as commodities and precious metals tend to move together in case of the bigger moves, this has also implications for the latter. This emphasizes that the medium-term trend is down, and what we’re seeing here is just a short-term corrective rally. Some might say that one shouldn’t even bet on such corrective upswings within a bigger downtrend, but hey, we already cashed profits from two trades during that correction, and the third trade is also already profitable – it appears that it might make sense, after all.
As always, I will keep my subscribers informed. (And I hope to see you tomorrow.)
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Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief