After that last post of the GLD & GDX charts, I wanted to be a little more clear on my current thinking. My reason for highlighting multiple support levels on both is that I really don’t know which of those levels, if any, will hold. I did, however, share what I though to be the most likely scenario on the GDX chart which was a move down to the dotted yellow uptrend line (lower of the two) which would also likely come in around the same time prices make a backtest of the descending channel. Those trendlines will intersect on Monday, August 12th… just to give you rough idea of how long prices would fall assuming that scenario plays out.
As calling market & security turns to within mere days and percentage points is a very difficult and often futile task, I will usually list my alternative scenarios/targets/expected bounce levels/etc…, as I did on those GLD & GDX charts. In posting about taking profits on GLD & the miners yesterday, I also mentioned that I will likely be looking to add back many of those positions on a pullback and as I can’t say with a high degree of certainty which, if any, of those support levels will be the ending point for this correction (GDX is down over 6% today), my strategy will be to add increasing add back exposure at each of those support levels, starting with the first one that we are currently trading at. Increasing means that because I favor additional downside, I will only add very small lots today, increasing the size of my lots as/if each additional support level is reached. If today happens to be the end of the correction, then I will continue to add back additional shares at objective levels (e.g.- after a breakout of resistance or continuation pattern such as a bull flag, preferably preceded by a bullish consolidation).
Now to the reason that I think we might get some additional downside (my GDX primary scenario would take us down about another 6% +/-, following today’s 6%+ drop) has a lot to do with my read on the equity markets. With 30 minutes to go in the trading session (as I type), we still have very solid sell signals in place on the 15 minute chart and as discussed earlier today, I believe that these very short-term sell signals will likely lead to additional sell signals on some of the higher time frames. Although at times gold & the miners will trade inversely to equities, my guess is that any decent sell-off in the equity markets will likely exert pressure on GLD and especially the gold & silver mining stocks, at least in the early stages. That’s quite the prognostication and a whole lot of crow to eat if wrong but if so, the only thing I have to lose by not buying back all the mining stocks that I sold yesterday (including WLT, which is down over 17% today), is lost potential profits. Trading is all about risk vs. reward and as tempting as it is to immediately recycle back into all the shares that I sold yesterday, I just don’t think that the R/R favors aggressively accumulating mining stocks just yet. If & when my thoughts change I will try to communicate it asap.