3 Bearish Similarities in Gold Miners
3 Bearish Similarities in Gold Miners by Przemysław Radomski, CFA for Sunshine Profits
It’s tempting to read into the recent small upswings in the price of gold and the stock market as a sign that things are on the up. Despite these short-term moves, the writing is in the charts and the charts point to bearish forces gaining strength.
As gold declines, and the general stock market declines as well, miners are likely to truly slide, taking bearish cues from both.
Gold moved somewhat higher yesterday, and miners moved lower yesterday – even below their Monday intraday lows. Based on these moves, we have a situation where all key parts of the precious metals sector: gold, silver, and mining stocks are somewhat above their recent lows, but still close to them. In other words, what might have appeared to be strength in the miners (Monday’s decline was limited in the case of miners when compared to the one in gold), is no longer present.
Moreover, please note that on the above chart we see at least three self-similarities:
- GDX just behaved and topped like in the previous cases that I had marked with blue ellipses
- GDX just invalidated the short-term breakout above the declining blue resistance line – just like in September
- GDX just rallied for a bit more than a week and stayed above the 50-day moving average for a few days, after which it declined in a rather volatile manner – just like what we saw in the first half of March 2020
All these self-similarities have bearish implications for the following days, so expecting a bigger rebound or a rally, might not be the best course of action at this time. Besides, if the general stock market moves lower, and given the likely decline in gold, miners would be likely to magnify S&P’s declines – just like they did in March.
And why would the general stock market decline from here?
It just got a significant boost from Pfizer as well as a boost from lower uncertainty based on the U.S. presidential election results. How did it react to it? It soared above the previous highs…
But only initially. The S&P 500 index failed to hold onto its gains, and it erased most of the rally before the session was over. It declined back below the previous 2020 high, which means that it invalidated the initial breakout. The bearish forces were too strong.
If the bearish forces were too strong right now – given both above-mentioned bullish boosts – then the bulls are unlikely to push stocks above their September high anytime soon.
Technically speaking, we just saw a profound shooting star reversal candlestick, which formed on huge volume, as well as invalidation of the breakout above an important level. This is a very bearish combination.
Consequently, I think that miners will get a powerful bearish push from the stock market and that they will slide further. Not necessarily today, as Monday’s decline might (! – doesn’t have to) require an additional quick breather, but the following days and weeks look very bad for the precious metals sector (including the miners).
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Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager