We might see an initial move higher – back above the rising resistance line, and then a slide below it, perhaps through…
The mining stocks’ performance falls in line with what we wrote previously. Quoting yesterday’s analysis:
Today, we would like to dig deeper into the analogy to the 2016 top. There are more similarities than just the most-extreme reading from the Gold Miners Bullish Percent Index.
In order to do that, let’s zoom in.
Back in 2016, the extremely overbought (100) reading from the Gold Miners Bullish Percent Index resulted in a small decline, which was supposedly a verification of the breakout above the previous (2013 and 2014) highs. Then we saw another final move back up and that was the top for the next few years.
What happened recently? The extremely overbought reading resulted in a decline back to the previous 2020 high and then another move higher. This is very similar to what we saw in 2016.
What happened in the GDX ETF with regard to its own technical indications?
Well, shortly after the extremely-overbought reading, the GDX ETF moved lower and broke below the rising medium-term support line. It then moved back up and topped slightly above the previous highs. When the rising support line was more or less at the same price level as the previous high, GDX broke below it and formed a top that was not exceeded for a few years.
And what happened recently in the GDX?
Pretty much the same thing. Shortly after we saw the extreme (100) reading from the Gold Miners Bullish Percent Index, GDX broke below its rising medium-term support line. It then moved back up, and while it didn’t move to new intraday highs, Friday’s closing price was slightly above the previous 2020 high.
The rising medium-term support line just moved to the previous high as well.
The history has been repeating to a very considerable (quite remarkable) extent, and if it continues to do so – which seems likely – we’re likely to see a sizable decline shortly. In fact, Friday’s high might have been the high for the next few months. If not, then such a high is very likely to form this week.
Miners moved higher yesterday, but they didn’t invalidate the breakdown below the rising support line. It continues to serve as resistance. Since gold moved higher in today’s pre-market trading and it didn’t decline back so far today, it could be the case that gold miners will also move higher today. It could also be the case that gold reverses shortly after touching $1,830 or so, and that happens before the end of today’s trading. This would likely result in a decline in miners after an initial upswing. Therefore, we might see an initial move higher – back above the rising resistance line, and then a slide below it, perhaps through a daily reversal pattern. Such a development would be a perfectly bearish confirmation of yesterday’s big analysis.
Back in 2016, when the Gold Miners Bullish Percent Index moved to 100, the GDX ETF continue to move up for a few days and topped on July 6th. The exact top was about a week later – on July 11th the price was slightly higher, but the real initial top formed on July 6th. The GDX ETF closed at $29.87 on that day. Then it declined and formed the final top in August. The high in terms of the closing prices was formed on August 2, at $30.60. Consequently, GDX’s final top in terms of the closing prices was 2.44% higher than the initial top.
If we made the same calculations for the intraday highs, we would see that the final top was ($31.06 / $30.02 – 1) 3.46% higher.
Now, the most recent high that accompanied the 100-level reading in the Gold Miners Bullish Percent Index was $38.96 in terms of the daily closing prices and $39.44 in terms of the intraday highs.
Assuming the analogous relative price increases this time, one could expect GDX to form a top at $39.91 in terms of the daily closing prices and to form the intraday high at $40.81.
The GDX ETF just closed at $40.38 and the intraday high was $40.49. These prices are between the above-mentioned prices, which means that so far the situation is developing very similarly as it developed in 2016, and that we can expect the final top to be in or to be formed very soon.
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