Gold & Silver Trading Alert originally sent to subscribers on
March 5, 2015, 8:04 AM:
Briefly: In our opinion speculative short positions
(full) in gold, silver and mining stocks are justified from the risk/reward
perspective. We are keeping the stop-loss levels at their current levels,
which means that we are effectively keeping some gains locked and at the same
time we’re allowing the profits to increase.
Precious metals declined once again and the HUI Index moved more visibly
below its 2013 low. What are the implications?
The precious metals sector might be ready to move much lower soon. We
still can’t rule out another corrective upswing, but it doesn’t seem that
adjusting the current full short positions is justified from the risk/reward
perspective. Today’s alert is going to be short as almost nothing changed
yesterday and all points that we made in yesterday’s
alert remain up-to-date.
Let’s take a look at gold’s short-term performance (charts courtesy of http://stockcharts.com).
Gold moved lower once again, but didn’t break below the $1,200 level. Once
it does, the decline will likely accelerate.
Interestingly, the Stochastic indicator based on daily prices just flashed
a sell signal. Please recall that on Feb. 12, right before we saw the
preceding buy signal (and expecting to see it), we
wrote the following:
Please note that the Stochastic indicator based on the daily prices is
visibly below 20 and if we see some kind of strength, it will flash a buy
signal. Based on the long-term picture, this signal is not likely to lead to
a major rally, but let’s keep in mind that there have been quite a few cases
when we saw a small counter-trend rally after similar signals, that were
followed by further declines. Please consider the action that we saw after
Nov. 11, 2013 and Aug. 25, 2014 - gold rallied by $25 or so and then declined
once again. At this time we would not be surprised to see a move up
from $1,200 to $1,220 - $1,230 that would be followed by further weakness.
That’s exactly what we’ve seen – gold moved a bit above $1,220 and
declined once again. Moreover, the sell signal from the daily Stochastic
indicator flashed at lower prices than the preceding buy signal, so not
following this indicator was definitely a good idea. The Stochastic indicator
is indeed useful for precious metals investors, but only if we use it based
on weekly closing prices, not daily ones.
The second chart that we would like to discuss today is the one featuring gold
stocks.
We previously commented on the above chart in the following way:
(…) it seems that this decline is not over and that miners have further to
fall. (…) The key declining resistance line is currently at about
200, so the odds are that even if gold
stocks move higher, they will not move above this level.
However, we have not seen a move higher in the last few days – we saw
declines, also yesterday, when gold stocks declined more than gold. Overall
gold has declined by 0.84% so far this week and the HUI Index has declined by
4.57%. The previous outperformance of gold stocks has evaporated and gold
miners are once again declining, also relative to gold. The implications of
the above are bearish and we can say the same about the HUI’s visible move
back below the 2013 low.
The above remains up-to-date, and the fact that the move back below the
2013 low is clearly visible from the long-term perspective serves as a
bearish confirmation. The outlook remains bearish and it seems that we will
have an excellent buying opportunity in several weeks / months.
On a side note, the USD Index is moving close to its long-term resistance level,
but based on the recent lack of correlation between gold and the USD, the
implications of any move lower in the USD Index or of a post-breakout rally
would be rather unclear, so we are not focusing on this market at this time.
Overall, we can summarize the situation in the precious metals market in
the same way as we did previously:
Summing up, while we are already seeing some kind of
corrective upswing, it doesn’t seem to be justified from the risk/reward
perspective to adjust the current profitable positions. The profits may get
smaller temporarily, but the odds are that they will become even greater as
the medium-term trends remain down and the medium-term sell signals remain in
place.
As always, we’ll keep you – our subscribers – informed.
To summarize:
Trading capital (our opinion): Short positions (full) in
gold, silver and mining stocks with the following stop-loss orders and
initial (!) target prices:
- Gold: initial target level: $1,180; stop-loss: $1,254,
initial target level for the DGLD ETN: $75.23; stop loss for the DGLD
ETN $63.16
- Silver: initial target level: $15.70; stop-loss: $17.63,
initial target level for the DSLV ETN: $66.25; stop loss for DSLV ETN
$45.40
- Mining stocks (price levels for the GDX ETN): initial
target level: $18.40; stop-loss: $22.17, initial target level for the
DUST ETN: $18.99; stop loss for the DUST ETN $11.32
In case one wants to bet on lower junior mining stocks' prices, here are
the stop-loss details and initial target prices:
- GDXJ: initial target level: $23.37; stop-loss: $28.37
- JDST: initial target level: $12.30; stop-loss: $7.00
Long-term capital (our opinion): No positions
Insurance capital (our opinion): Full position
Please note that a full position doesn’t mean using all of the capital for
a given trade. You will find details on our thoughts on gold
portfolio structuring in the Key Insights
section on our website.
As a reminder – “initial target price” means exactly that – an “initial”
one, it’s not a price level at which we suggest closing positions. If this
becomes the case (like it did in the previous trade) we will refer to these
levels as levels of exit orders (exactly as we’ve done previously). Stop-loss
levels, however, are naturally not “initial”, but something that, in our
opinion, might be entered as an order.
Since it is impossible to synchronize target prices and stop-loss levels
for all the ETFs and ETNs with the main markets that we provide these levels
for (gold, silver and mining stocks – the GDX ETF), the stop-loss levels and
target prices for other ETNs and ETF (among other: UGLD, DGLD, USLV, DSLV,
NUGT, DUST, JNUG, JDST) are provided as supplementary, and not as “final”.
This means that if a stop-loss or a target level is reached for any of the
“additional instruments” (DGLD for instance), but not for the “main
instrument” (gold in this case), we will view positions in both gold and DGLD
as still open and the stop-loss for DGLD would have to be moved lower. On the
other hand, if gold moves to a stop-loss level but DGLD doesn’t, then we will
view both positions (in gold and DGLD) as closed. In other words, since it’s
not possible to be 100% certain that each related instrument moves to a given
level when the underlying instrument does, we can’t provide levels that would
be binding. The levels that we do provide are our best estimate of the levels
that will correspond to the levels in the underlying assets, but it will be
the underlying assets that one will need to focus on regarding the sings
pointing to closing a given position or keeping it open. We might adjust the
levels in the “additional instruments” without adjusting the levels in the
“main instruments”, which will simply mean that we have improved our
estimation of these levels, not that we changed our outlook on the markets.
We are already working on a tool that would update these levels on a daily basis
for the most popular ETFs, ETNs and individual mining stocks.
Our preferred ways to invest in and to trade gold along with the reasoning
can be found in the how to buy gold section.
Additionally, our preferred ETFs and ETNs can be found in our Gold & Silver ETF
Ranking.
As always, we'll keep you - our subscribers - updated should our views on
the market change. We will continue to send out Gold & Silver Trading
Alerts on each trading day and we will send additional Alerts whenever
appropriate.
The trading position presented above is the netted version of positions
based on subjective signals (opinion) from your Editor, and the automated
tools (SP
Indicators and the upcoming self-similarity-based tool).
As a reminder, Gold & Silver Trading Alerts are posted before or on
each trading day (we usually post them before the opening bell, but we don't
promise doing that each day). If there's anything urgent, we will send you an
additional small alert before posting the main one.
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metals market and receive our Gold & Silver Trading Alerts (like the one
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Thank you.
Sincerely,
Przemyslaw Radomski, CFA
Founder, Editor-in-chief
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