PMs: Miners Reverse As Metals Remain Questionable
Jordan Roy-Byrne, CMT | Dec 19, 2014 03:15PM ET
Gold and Silver stocks put in a bullish weekly reversal, although neither has not confirmed it. The interplay between the metals and the shares has been complicated in recent weeks. Hopefully, this missive will make some sense of it as the two groups continue to send mixed signals.
Gold and Silver are charted below in weekly candle format. Before this week, the metals looked bullish. Each tested support and rebounded strongly toward resistance. However, both metals gave back much of their recent gains. Bulls would say they are correcting and still in position to test resistance. Bears would say the metals failed to reach resistance and are headed to new lows.
Though the mining stocks sold off Friday, they’ve completed a bullish reversal and double bottom on most weekly charts. Below we plot (ARCA:GDXJ), (ARCA:GDX) and our Top-40 index. Other than GDXJ, just about every miner index has completed a double bottom. Though GDXJ made a new low, it did form a bullish reversal. GDX and the Top-40 index formed bullish hammers and potential double bottoms. We say “potential” double bottoms for a reason. The double bottom is a very bullish pattern in which the market should explode up from the second bottom.
Only time will tell if the miners follow that path or if the reversal fizzles.
Interestingly, the metals and the miners have been disjointed in recent weeks. Gold lost 2% while Silver shed 6%. Yet the miners put in a positive reversal. During the two prior weeks, metals rebounded strongly even as the miners sold off. Part of that could be tax-loss selling in the miners, which has created additional weakness.
Investors and traders have a good setup in the miners. Downside support is defined by the double bottom. A weekly close below that could be the stop-out point and would limit losses. Meanwhile, if the metals are destined to take out their October highs then the miners should explode higher sooner rather than later. After 2013's tax-loss selling, GDXJ rebounded over 50% within two months.
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