The GDX invalidated its break-out above its 2016 high in February, and do you know what happened then? The MARKET CARNAGE happened!
The key development of yesterday’s session was the decline in gold stocks and decisive invalidation of HUI Index’s breakout above its 2016 highs.
We previously commented on the above chart in the following way:
The HUI Index invalidated the breakout above the 300 level, and it also invalidated the breakout above the 2016 high (286.05) in intraday terms by closing at 285.13. This made the bearish picture for gold miners more bearish. The final confirmation of the top being in, will be gold stocks index’s close below the highest weekly close of 2016 – 278.61.
The reason we’re giving so much attention to the 2016 high right now and so little to anything else – at least in case of the gold stocks – is that what happens with regard to it really is the key to the miners’ technical outlook. Confirmed breakout above the 2016 high would be likely to result in a bigger move higher, while its invalidation is likely to result in a bigger move lower.
Given the fact that gold is not moving up despite USD Index’s sizable daily decline, it seems that we might see declines in gold and gold miners shortly (as soon as the USDX regains strength), and the decline below HUI’s highest weekly close of 2016 will serve as a great bearish confirmation for gold, silver, and miners alike.
The HUI Index just closed at 270.55, which is clearly below the highest weekly close of 2016. This serves as a strong bearish sign, and it will be even more bearish when the HUI manages to close the week below the 2016 weekly high as well. There are only three sessions left (including today) before the end of the week (and month), so it will be very important where the HUI Index closes on Friday.
At this point, you might be asking yourself what’s the big deal with the invalidation of the 2016 breakout and why are we placing so much emphasis on it.
One thing is that breakouts above previous highs are an important technical sign and everyone can clearly see them, and so are invalidations. The more profound the previous high is, the more important the implications become. And the 2016 high was indeed profound.
The second thing is that we saw exactly the same thing in the GDX ETF earlier this year. The GDX moved above its 2016 high in late February 2020, and it then invalidated this breakout. Do you know what happened then? The February-March carnage.
The third thing that makes yesterday’s decline and invalidation of the breakout so important is that it was accompanied by developments that should have caused gold miners to rally. This shows just how badly miners really want to slide from here.
Thank you for reading today’s free analysis. Please note that it’s just a small fraction of today’s full Gold & Silver Trading Alert. The latter includes multiple details, but most importantly, it includes the clear discussion of what will be the sign telling one that gold’s move lower is almost certainly completely over. That’s the detail, we think you might enjoy, want, and need right now.