Yes you read that correctly. The miners have begun another leg higher because
the evidence strongly supports the view that they have formed a higher low.
Only time will tell for sure but the evidence is quite strong. It seems that
every analyst was calling for a July low. I felt strongly that the miners would
make their next low after Gold broke below $1200. I was far more confident
in the bullish case at the June 2013 and December 2013 bottoms. I was even
skeptical after Tuesday's upside explosion. However, the weight of the evidence
today argues that the miners have made a higher low and are starting their
next leg higher.
First let's look at GDXJ which is showing leadership. I want to highlight
three bullish points. First, the volume has been huge. Weekly volume will be
a record. Daily volume was near records the day before GDXJ bottomed (May 27)
and the day it bottomed (May 28). After Monday it appeared the miners could
head lower. Tuesday GDXJ gapped up and closed at the high of the day on huge
volume. Wednesday's volume dipped only slightly while Thursday's volume was
an all time high! Strength was followed by strength. The second point is that
Tuesday and Wednesday's explosions came with the metals being up less than
1% in that entire period. The shares are showing excellent relative strength
at a time when the metals are in a weak technical position. Third, note that
GDXJ is set to close at a 12-week high. That is quite a bit of strength only
two weeks after a low. The initial rebounds from the previous two lows were
much weaker in size and intensity. GDXJ's next resistance is $44. A weekly
close above $44 marks a higher high.
Meanwhile, history argues that its very unlikely that the bear in the miners
isn't over. The current bear would be the third longest ever. The two longest
bears were the longest because their price damage was mild until the tail end.
It's not impossible that the current bear could roll over to a final low. We
thought that was possible until Wednesday. However, given the aforementioned
strength in the sector, it seems highly unlikely.
The action in Silver and the silver stocks also leads me to believe that the
near term risk reward strongly favors the upside. We've
been waiting for Silver to break below $18 because we believe it would
mark a clear end to its bear market. Silver recently closed at an 11-month
low and the same week closed Friday at $18.82, which marked a new weekly low
for the bear market. Silver has since failed to decline further. The metal
has started to rally and it could spark a short squeeze. Gross
short positions reached a new all time high in each of the past two weeks.
Moreover, the chart below shows the positive divergence in the silver stocks.
While Silver tested its June 2013 low, SIL and SILJ were trading well above
their lows.
The weight of the evidence argues that precious metals shares and likely Silver
have seen their low and are headed higher. GDXJ and Silver peaked more than
three years ago. GDXJ declined 81% while Silver's bear market was nearly its
worst excluding its 1980 collapse. The outright strength in the stocks cannot
be disputed. It was not a one day event. The stocks led the metals down and
are now in position to lead the metals higher. With that said, the only fly
in the ointment for me is Gold which peaked last, is technically weak and still
carries some speculative interest. I would not be surprised to see it break
lower before the entire sector moves aggressively higher. Regardless, our view
is the stocks have formed a higher low and that pullbacks should be bought.
They don't ring a bell at the start of a new bull market and by nature analysts
and pundits won't be in agreement when it starts.
Good Luck!
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