Breathers in Mining Stocks Are Not Real Rallies
Sunshine Profits | Jul 06, 2023 07:45AM ET
A bearish signal behind silver’s recent surge that has accurately predicted market downturns before? Brace yourself for the possibility of a major decline.
In my analysis yesterday, I was forecasting silver prices for July 2023, and basically, this prediction was not bullish. Yes, I am very bullish on silver in the long run, but silver’s recent strength appeared fake as it was not accompanied by significant volume.
In yesterday’s session, silver did show relative strength compared to gold (chart courtesy of GoldPriceForecast.com)
The problem with this rally in silver is that silver’s very short-term outperformance of gold is a bearish sign – as simple as that. We’ve seen it on multiple occasions, and this signal proved to be reliable. Of course, there are no certainties in any market, but this is one of the more reliable indicators.
That’s not the only bearish indication that we see right now. If you look at mining stocks’ short-term chart, you’ll see that it just reversed its course after touching its declining resistance line.
That’s not that surprising, given the volume readings that I had mentioned previously. I emphasized that sharp upswings that were accompanied by huge volume spikes in hourly terms (the above chart is based on hourly candlesticks) preceded bigger declines in all three out of three recent cases.
Therefore, the recent rally – as I had written – was not bullish but rather a regular pause within a bigger decline.
In fact, please note that those sharp high-hourly-volume upswings were followed by really significant short-term declines, so what we saw yesterday is probably small compared to what’s next, even though it was a near 3% decline.
Get The News You Want
That also makes sense in light of the analogy to what happened last year in June. We saw a very brief rally after RSI moved to the 30 level, but that wasn’t necessarily the end of the decline.
Instead, it was just a comeback after the breakdown below the previous (May 2022 / May 2023) lows. So, are we about to see another sharp decline in the miners? That’s what yesterday’s price action in the GDXJ and silver’s brief outperformance are telling us right now.
All in all, we might see a bigger (possibly tradable – allowing us to cash in profits from the short positions) rebound as early as this (or next) week, but it doesn’t seem like the recent upswing was the start of it.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.