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Update on Precious Metals and Miners

I devoted an entire subsection of this past weekend’s Weekly Strategy Session to discussing the previous metals and miners. For many weeks now, the stance has been to resist the urge to call a bottom. Even after a swoon, they still are having trouble sustaining much of a bounce. 

Another leg lower need not occur, but the risks still remain considerable. 


3. Continue to Use Caution with Bottom-Picking the Precious Metals and Miners

The updated weekly charts for both the gold and silver ETFs indicate wildly oversold conditions, with last week’s a gap-down candle entirely below the lower weekly Bollinger Band. However, putting this oversold condition into context, traders should likely continue to resist the urge to stubbornly play for an elusive snapback rally.

As evidence, consider now the daily timeframes for both the gold and silver ETFs. Their bounce attempts have been tepid, and shorts have not been compelled to cover. Furthermore, bottom-pickers could easily be trapping themselves for another leg lower even though they may have entered the trade under the guise that they would trap the shorts for a squeeze higher. Again, as evidence to support those theses, observe the daily charts, below, forming “bear flags,” or continuation patterns of the clear downtrend. Buy volume has also been weak, meaning that buyers have not yet presented themselves in a meaningful way.

Even though there is no guarantee of further downside, the risk remains abnormally elevated. In order for precious metals bulls to benefit from a sharp snapback bounce, we would need to see these bear flags negated to the upside. But even then, the duration of any and all rallies is suspect due to the damage on the weekly charts, above. We are looking at major, not minor, price levels having been forcefully breached.

In other words, rallies in the precious metals are almost assuredly to be sold into or even shorted until $148 on GLD and $26 on SLV are recaptured with conviction.

In addition, also note the gold miner ETF and Silver Wheaton, a premier silver miner, are showing similar daily chart bear flags. So, as a whole, the precious metals and miners are not yet offering a good setup even for a reversion-to-mean trade. Also note both charts have  seen price move back inside their lower Bollinger Bands, perhaps working off the oversold conditions through marking time sideways in lieu of a price snapback rally.

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One comment

  1. WilyMike

    The shorts have the edge here, but I’m holding cash until I get a break lower from a flag. Too early to pursue higher IMO

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