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This week’s action in the precious metal complex looked totally designed to shake out the weak hands and thoroughly discourage even those stronger hands that might have prepared for a corrective phase. Before reversing nicely on Friday, the GDXJ traded as low as 41.76 which is more than a .625 Fib retracement of the 34-1/2 to 53-1/2 move. I would have guessed more like .50 when I predicted this corrective move a few weeks ago. That’s what good corrective moves do: shake up everybody, never going exactly to plan and then freeze the bulls from doing much of anything. Interesting to me, and perhaps very bullish, is that all during this corrective phase I did not get one single new subscriber, even though I called this phase. That signals to me that new bulls are quickly giving up in the early innings of a new bull market in precious metal equites (see August 24 comments).
This action is the exact opposite of the extreme complacency and sense of entitlement seen with stock market beta chasers. But it also sets the stage for a powerful rally in the GDXJ and a severe plunge in the broader stock market.
Friday, the S&P 500 sat a full 30% above its 200-week moving average. We have never been this overextended at any point in the last 20 years. The idea of continuing to buy low-cost out of the money “Hail Mary” puts appeals to me because the decline, when it arrives, could be ferocious.
The gold CoT has improved some and I graded it a B before this week’s rather staged looking drop. It has likely improved. I don’t think a repeat of the May-June theatrics is coming. The Chinese returned in force Thursday night at the Shanghai exchange and U.S. banksters are long gold and not likely to cooperate this time with game boys and sand box turd players.
Personally, I’m playing it as if the intra-day low on Friday was the bottom of this corrective move. I’ve moved about two-thirds of my reserve that I had raised near the 52 area back into the sector and am generally pleased with my purchase levels. The GDXJ has overhead resistance at 45.25-45.50 to work through, so we might see a little yo-yo action. It’s what Morris Hubbart calls for in his latest podcast recorded Friday morning. However, we may not be too far away from a big leg up going into October.
Chart source: Morris Hubbart