The
gold miners’ stocks have had a wild ride this month, surging then
plunging. After hitting new upleg highs, the leading gold-stock
benchmark collapsed in a sharp drawdown. That gutted bullish
sentiment, bringing back worried bearishness. But despite that big
swing, the uptrend of gold stocks’ young upleg remains intact. This
sector is still marching higher on balance with gold, a bullish omen
for further gains.
Price action in the financial markets is never linear for long.
Asset prices perpetually flow and ebb, often chaotically from day to
day. That reminds me of Mark Twain’s famous quote, “If you don’t
like the weather... just wait a few minutes.” Volatility is a
constant companion in the markets, forever toying with traders’
emotions. But over longer-term time horizons, this incessant daily
noise tends to form tradable trends.
Keeping those in perspective is essential to achieving trading
success. Viewing price action in broader trend terms rather
than fixating on big daily swings greatly moderates greed and fear.
Letting short-term volatility stoke those dangerous emotions leads
to buying high and selling low, fueling losses. Borrowing from
Ephesians’ wisdom, traders can’t be “tossed to and fro, and carried
about with every wind” of price action.
January’s big gold-stock volatility must be considered as a whole to
be properly processed and gamed. The leading and dominant
gold-stock benchmark and trading vehicle is the GDX VanEck Vectors
Gold Miners ETF. This week its $16.3b in net assets commanded a
staggering 64% of all the capital deployed in all the American
gold-stock ETFs! GDX’s wild price action this month highlights this
sector’s serious swings.
GDX
blasted 6.9% higher on 2021’s opening trading day of January 4th,
hitting major new upleg highs which really excited traders. But
later that week on the 8th, GDX plunged 4.8%. Another week after
that on the 15th, it dropped another 3.1%. Then in the middle of
this week, it surged 3.4% higher. This has to seem schizophrenic to
traders fixating on day-to-day price action, violently capricious
and excessively risky.
But
when these sharp swings are considered together, they continue to
carve an uptrend in gold stocks’ latest young bull-market
upleg. That is readily apparent in this GDX chart encompassing the
past couple years or so. Pay particular attention to the past
couple months’ price action, where big volatility has been giving
myopic traders fits. Gold stocks are actually marching higher on
balance, which is certainly bullish.
Gold
stocks’ powerful bull market in recent years is a case study in
contrasting price action. Massive uplegs rocket higher, rapidly
multiplying traders’ capital. Gold stocks’ last one peaked in early
August at enormous 134.1% GDX gains in just 4.8 months! But after
shooting parabolic, this sector was extremely overbought riddled
with excessive greed and euphoria. So a healthy rebalancing
correction was necessary.
That
indeed unfolded over the next 3.6 months into late November, where
GDX fell 24.9%. Both this latest upleg and correction proved very
volatile within their trend channels rendered here. Gold stocks’
high inherent volatility made for big and sharp countertrend
moves in each. This sector advances in line with its prevailing
trends, then retreats. This two-steps-forward-one-step-back
meandering is ubiquitous.
It
also applies to bull-market uplegs due to the scaling fractal nature
of the markets. Like the broader bulls containing them, individual
uplegs flow and ebb. Gold-stock prices forever rise and fall,
seemingly chaotically as apparent in this GDX chart. But considered
together these daily swings gradually coalesce into uptrends, series
of higher lows and higher highs. These are the backbones of
wealth-multiplying uplegs.
Our
current one stealthily started marching higher in late November.
Gold-stock sentiment was bearish then, drenched in fear after a
multi-month correction. But gold miners’ stocks are ultimately
leveraged plays on gold, which overwhelmingly drives their
earnings. And gold’s own parallel correction that forced gold
stocks’ was maturing, growing to bull-market precedent. That
green-lighted a
new gold-stock upleg.
The
best opportunities to buy gold stocks at relatively-low prices
within ongoing bulls come when corrections are bottoming. So that
very day when GDX closed at $33.42, we started layering in new
long-gold-stock trades to ride their next major upleg. Before that
we had abstained from deploying any capital in gold stocks since
June. This sector was
starting to get
overbought then, so we let our existing trades ride.
They
had been largely added between March to May around and after the
bottoming of gold stocks’ last correction. They were ultimately
stopped out in July and August at huge absolute realized gains.
Across 17 gold-stock trades in our weekly newsletter, those averaged
+81.3%. Another 9 in our monthly ended up averaging +83.6%. And
those annualized to stellar averages of +303.9% and +334.9%
respectively!
It
pays big to buy relatively-low after gold-stock corrections mature,
then later sell relatively-high when the subsequent uplegs mature.
Understanding when these key opportunities occur, and having the
mental toughness to suppress greed and fear to actually buy and sell
gold stocks in opposition to the herd, totally depend on
maintaining perspective. That means processing gold-stock daily
volatility in broader trend terms.
In
late November no one knew exactly when or where gold stocks’ last
correction would bottom. But we could know that critical turn
was increasingly likely based on both bull-to-date precedent and
prevailing sentiment. Buying low and selling high is a
probabilities game, requiring trading decisions to be made in
real-time before upleg-correction trend reversals are decisively
known. That certainty only comes with hindsight.
Even
if those parallel gold and gold-stock corrections hadn’t been quite
over yet in December, the odds of new uplegs starting to power
higher were very favorable. So we’ve kept layering in new
gold-stock and silver-stock trades ever since then, trying to buy in
relatively-low for a new-upleg campaign. Those trades would’ve
straddled the ultimate correction bottoming had it come a little
later, which is the optimal strategy.
But
instead the gold stocks started powering higher on balance in an
increasingly-solid new upleg, which is readily evident in their GDX
benchmark. Gold-stock prices are still relatively-low early in
young uplegs before most traders recognize them. That usually
happens months later, leading to big capital inflows accelerating
gold stocks’ upside as traders chase those gains. We want to be
fully deployed well before that.
By
December 7th GDX had surged 9.2% to $36.50, which was nice but
inconclusive. Sharp rallies are common within gold-stock
corrections, like GDX’s blistering 13.4% seven-trading-day surge
straddling the early-November US elections. But that election-spike
downtrend breakout soon proved false, because the gold and
gold-stock corrections hadn’t matured yet. In mid-December, GDX
retreated 6.1% to $34.29.
If
that held, it would prove a higher low well above November 24th’s
$33.42. And it did! GDX blasted up 8.7% over the next three
trading days to $37.29 on December 17th. That was a higher high
over the previous $36.50. An uptrend is just a series of higher
lows and higher highs, and uptrends make up bull uplegs. So the
new-gold-upleg-underway thesis was looking better as GDX’s uptrend
kept solidifying.
But
upleg advances always happen in that flowing-and-ebbing fashion,
taking two steps forward before retreating one step back. So GDX
dropped another 5.4% to $35.28 on December 22nd. That made for its
third higher low since late November, an encouraging sign. The gold
stocks ground sideways into year-end, but a definite gold-stock
uptrend had formed. But it still had a vexing major technical
problem.
By
that point GDX still hadn’t broken out above either its recent
correction’s downtrend resistance line or its 50-day moving
average. 50dmas are often strong resistance zones within ongoing
corrections. So despite gold stocks’ higher lows and higher highs
by then, technically GDX also remained trapped within its correction
downtrend. Thus considerable risk remained that gold stocks’
correction lows had yet to be seen.
But
this sector’s technical picture radically improved on January 4th,
2021’s opening trading day. GDX blasted 6.9% higher to $38.51 that
day, which was its third major higher high since early November.
But much more importantly, that was
a major upside
breakout! GDX simultaneously shattered both those
correction-downtrend and 50dma resistance zones. Then GDX held
those new highs for four days in a row.
That
was the strongest technical evidence yet that gold stocks’ last
correction indeed bottomed in late November, so a new gold-stock
upleg was underway. With its uptrend becoming more apparent,
gold-stock enthusiasm was mounting. But that was soon gutted on the
8th, when GDX plummeted 4.8% back to $36.52 in a serious down day!
While gold stocks’ uptrend hadn’t been broken, that really spooked
traders.
That
happened to be on Jobs Friday, the day the official US monthly jobs
report is released. That can really move gold, and the gold stocks
mirror and amplify their metal’s fortunes. Gold plunged a massive
3.5% that day, so GDX’s 4.8% sympathetic loss was fairly minor.
Normally this leading gold-stock ETF tends to leverage material gold
moves by 2x to 3x, so that 1.4x was actually restrained. Why did
all that happen?
A
week ago I wrote an entire essay analyzing
gold’s
Jobs-Friday plunge, which is really important for all gold-stock
speculators and investors to understand. Basically speculators’
bullish positioning in highly-leveraged gold futures was excessive.
So after the psychologically-heavy $1,900 level failed overnight
before that jobs data, cascading selling erupted as a long-festering
gold-futures-selling overhang was unwound.
The
resulting gold-stock carnage was merely collateral damage. But big
GDX up days and down days really spark surging emotions, greed and
fear respectively. Traders caught up in day-to-day price action see
big swings and tend to extrapolate those moves as likely to persist
indefinitely. So they succumb to greed to buy relatively-high after
big daily rallies, and are overcome with fear to sell relatively-low
after big drops.
And
the latter is exactly what happened in the week following gold
stocks’ Jobs-Friday plunge. Over the next week into January 15th,
GDX bled another 5.5% to $34.51. That extended its total selloff
since 2021’s opening trading day to 10.4% in nine trading days.
Technically that lower low broke the gold-stock uptrend’s lower
support line, which had been steep exceeding the rising slope of
GDX’s 200-day moving average.
But
again focusing on the broader gold-stock trends instead of just
January’s sharp drawdown puts things in superior perspective. Gold
stocks’ young upleg wasn’t in jeopardy, so there was no
justification to being scared into selling relatively-low. While
$34.51 was under the previous GDX low of $35.28, it was still well
above the last correction’s late-November bottoming at $33.42.
GDX’s uptrend was just redrawing.
Uptrends are formed by parallel lower-support and upper-resistance
zones, which are drawn as best-fit lines. These aren’t static, but
gradually shift to accommodate the great majority of the chaotic
day-to-day GDX price action. So especially earlier in uplegs when
they remain young, uptrend slopes are redrawn as new data
comes in. Those uptrends tend to moderate after their initial sharp
surges, getting shallower.
This
process of continually adjusting to the data reminds me of video
footage showing how computers in autonomous cars process the
real-time incoming camera data. They are constantly redrawing
boundary lines showing where road edges and painted lanes are.
These ever-shifting roadway paths the cars are following are
analogous to trends. Best-fit upleg uptrends are fine-tuned and
adjusted based on price action.
Although shallower than it was a week earlier, gold stocks’ young
upleg remains very much alive and well. Now its uptrend is
paralleling GDX’s 200dma rather than overtaking it, which is much
more sustainable. If an upleg surges too far too fast it generates
too much greed. That pulls forward too much future buying, sucking
in all interested traders’ capital too quickly. When that buying
firepower is exhausted, uplegs fail.
So
January’s sharp gold-stock selloff was essentially a drawdown
within an ongoing uptrend. Although it forced a redrawing of
GDX’s uptrend channel, these adjustments are typical in young
uplegs. The gold stocks are still carving higher lows and higher
highs on balance, which means their young upleg remains intact.
These recent lows offer great opportunities for traders to
aggressively add gold stocks relatively-low.
At
best as of January 4th, GDX’s young upleg has only climbed 15.2%
over 1.3 months. That is nothing in this sector, where this bull’s
previous four uplegs averaged massive 99.2% gains in GDX
terms! There is no reason gold stocks can’t double again this time
around, as their fundamentals are incredibly bullish at these high
prevailing gold prices. So it’s prudent to keep layering in new
trades with gold stocks still cheap.
With
gold’s own outlook really bullish on epic central-bank money
printing, dangerous bubble valuations in the stock markets, and
radical underinvestment with sub-1% overall American portfolio
allocations, gold stocks still have huge upside potential. As their
gains mount, other traders will catch on and start chasing this
sector. That will really accelerate this upleg, closing the
early-upleg window to buy in relatively low.
The
ideal time to get deployed is before most other traders figure out a
major new gold-stock upleg is underway. So we’ve continued to
gradually layer in new trades in fundamentally-superior gold stocks
and silver stocks since late November. The current count is up to
14 new trades in our weekly newsletter and 6 in our monthly. Their
formats have recently been updated too, increasing their focus on
individual-stock analysis.
At
Zeal we walk the contrarian walk, buying low when few others are
willing before later selling high when few others can. We overcome
popular greed and fear by diligently studying market cycles. We
trade on time-tested indicators derived from technical, sentimental,
and fundamental
research. That’s why all 1178 stock trades recommended in our
newsletters since 2001 averaged hefty +24.0% annualized realized
gains!
To
multiply your wealth trading high-potential gold stocks, you need to
stay informed about what’s going on in this sector. Staying
subscribed to our popular and affordable
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young gold-stock upleg is a great time to get deployed.
The
bottom line is gold stocks’ young upleg remains intact despite
January’s sharp selloff. While that did redraw and moderate GDX’s
uptrend, this leading sector benchmark is still carving higher lows
and higher highs on balance. Unless that changes, there’s no reason
to doubt this upleg. That means any pullbacks are opportunities to
aggressively add positions in fundamentally-superior gold stocks at
relatively-low prices.
Uptrends are often in flux, with their best-fit support and
resistance lines gradually shifting to encompass evolving day-to-day
price action. Shallower upslopes are more sustainable, giving
uplegs more time to ramp up and attract in capital. Gold-stock
traders need to process gold-stock price action in the context of
trends, not let big daily swings overly influence their outlooks.
Maintaining perspective is essential to success. |