As the dollar has weakened over the past few weeks OA, Ragin, and Lord Fly point out (iBankCoin is really all you need), gold has gone into hyperdrive and many of the miners have gone parabolic. After an increasingly large green candle sprint into Friday’s euphoric squeeze, supply has sharply rejected price on Monday (Fly pointed out an interesting divergence between the dollar and commodities) and Tuesday, and miners have been smacked down. But, here’s the thing about getting rocked after a momentum-inducing inflated sense of invincible gorilla-self run: after you get leveled for the first time, you get up in disbelief, stunned, dizzied, and frantically make a second push to recapture that imperturbable, primal dominance. Am I really conflating gibbon and hominid aggression with parabolic price action? Isn’t that some sort of violation of a cognitive bias paraded by the mendacious angel self-help culture? When it comes to parabolic short setups, typically the first drop is tough to catch, unless you scale into the short on the spikes (which really only sometimes works) and mitigate risk via a mental stop (the squeeze up can blitz the shit out of you, induce agida (extra meatballs), etc…). But after the first drop (I covered my $GDXJ short yesterday), typically there is a shortable snapback to the highs that you can catch to scale into for a short. When price marches back up (if you’re real quick, you can play this move up), observe the speed of the price rejection as it approaches prior highs. The move can put in a lower high or equal high, but the speed of the rejection is crucial to watch. If price takes out the prior high, observe the reaction to price exploration above. This will dictate whether we squeeze higher or if the run is over in the short term. Whatever you do, avoid shorting a consolidation at the highs; chances are, buyers are supporting price and another pop is coming. In all, this is an imperfect science, but if you stay with this price action hawking approach, you may be able to snag some quick, handsomely rewarding gains on the ultimate failed move higher and subsequent retracement. I will be closely monitoring this price action for the rest of this week and next.
Here’s the thing that complicates this setup in the intermediate term. The Greenlight annual letter posits gold as a safe haven in this stage of global monetary policy experimentation (Einhorn is long) and explicit drive to hit inflation targets. If ‘the storm’ is coming, will rotational capital continue to flow into gold/miners, and bid prices skyward)? Haven’t gold/miners rallied along with the market since mid-February? When does this classical correlation kick back in? What gives? In the short term, these are some very overextended charts, and signs of weakness (green-to-red price action, failed retest at the highs, lower high, sharp supply dump, etc…) should be monitored for a potential short entry. Below are some of my favorites (above 10 bucks). If there are moves back to the highs, I’ll be hawking. You could, of course, go nose clamming for $DUST/$JDST. One note, $GOLD reported dismal earnings and is gapping down below a rising channel.
- $ABX
- $NEM
- $GG
- $RGLD
- $GDXJ
