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Mini Weekend Report | $GDX $JNUG $NUGT | 19th March 2017

Mini Weekend Report | $GDX $JNUG $NUGT | 19th March 2017

Good morning everyone.

I’ve been flat out with some charity events that have consumed my time over the last 2 weeks. This will continue to be the case for the next 2-3 weeks. So I’ll cut to the chase, as usual.

 

Gold Miners

Gold miners continue to be volatile. It appears that while Gold is holding stable, the miners are not.

GDX (Gold Miner Index) is down 0.44%… No big deal…for now just apparently a healthy correct which has driven price down to short term support.

GDXJ (Junior Gold miner Index)

Junior Gold miners had a rough day on Friday, closing out American trading on -3.12%.

This is a little more unexpected as gold has been holding up around $1229 USD.

 

NUGT & JNUG

NUGT is down 1.33%

While JNUG is down a whopping 9.33%…giving back much of its gains from last week.

Gold

Gold has been performing strongly after the selling pressure leading into the FOMC meeting….

 

Gold Head and Shoulders Risk

On the edge

However, gold must start trading above $1240 in the short term or risk developing into a head and shoulders pattern:

Here is the Standard Head and Shoulders Pattern from Wikipedia for comparison:

 

“Head and Shoulders formation consists of a left shoulder, a head, and a right shoulder and a line drawn as the neckline. The left shoulder is formed at the end of an extensive move during which volume is noticeably high. After the peak of the left shoulder is formed, there is a subsequent reaction and prices slide down to a certain extent which generally occurs on low volume. The prices rally up to form the head with normal or heavy volume and subsequent reaction downward is accompanied with lesser volume. The right shoulder is formed when prices move up again but remain below the central peak called the Head and fall down nearly equal to the first valley between the left shoulder and the head or at least below the peak of the left shoulder. Volume is lesser in the right shoulder formation compared to the left shoulder and the head formation. A neckline is drawn across the bottoms of the left shoulder, the head and the right shoulder. When prices break through this neckline and keep on falling after forming the right shoulder, it is the ultimate confirmation of the completion of the Head and Shoulders Top formation. It is quite possible that prices pull back to touch the neckline before continuing their declining trend”

Gold Upside

Now there is a possibility of course that gold continues gathering in strength to the upside, however it is not my opinion that the time is right yet…

 

However, always remember that Gold is one of many options for global money to flow into. Gold’s movement largely depends on the currencies and bond market….

U.S Dollar

As you can see, the dollar is due for a short term bounce after the ” Buy the hike news, sell the hike” rate rise:

Dollar Chart

If the dollar does bounce, gold will be under pressure until it’s over.

Yen

The Yen appears to be consolidating. This is dangerous for gold.

Not only is the Yen due for a  bounce, but if indeed it holds this price level, it would be the set up for the next leg in the Yen…

Yen Daily Chart

The Yen (USDJPY)  must break lower than 112.50 for gold to have its next leg up.  Otherwise Gold’s head and shoulders pattern will become more likely, meaning gold miners will be in for some hurt.

 

Euro

Similarly, after the Dutch Elections, the Euro’s rally began faltering and has not broken out of the trading box.

Euro

A further weakening will see the Dollar strengthen and hence, the Gold price may weaken in the interim.

 

Government Bonds

Government bonds are up against resistance… If bond prices break higher, then Yields will come down which would be good for Gold. However, bonds are looking a bit weak for my liking…

GOVT Government Bonds

 

Conclusion

I would like gold to go higher, however it does appear that the counter trading instruments are all due for a bounce or reversal, even if its just in the short term. The first round of the 2017 French presidential election will be held on 23 April 2017. Should no candidate win a majority, a run-off election between the top two candidates will be held on 7 May 2017.

Between now and April 23rd there may be a good entry point for gold in the face of a weakening Euro leading into the French election. I also expect some weakness in Australian Gold miners, some of which had a great rally (which I had missed. See below).

Missing the Trade Does not Mean Chasing the Trade

 

I was completely comfortable exiting my EVN trade at $1.92 as I could detect some weakness in the pricing. However, I did not trade further on the Friday as price dropped to $1.89. Now, this was to my own detriment as support held around the $1.90 mark. I literally was just not trading on Friday after 8am and I thought nothing of it.

However, by Monday EVN had risen to $2.04/$2.06… and after the rate hike it had rocketed to $2.25.

Yay for my entry point, but self- reflection time for interfering with my initial set-up.

The points I wish to make here for you are:

Everyone misses trades. It happens all the time. Every day. In fact you can scan every stock on the ASX and there will be over a thousand trades that I had missed on Friday. And so will it be in the future.

But there will also be trades that are gained and that will also continue in the future.

How much did I not gain? Roughly $25k.

But here is the point of consistency: Missing a trade does not automatically mean I need to “catch up” with a poorly timed entry.  The reason the initial entry of $1,92/$1.89 was great was due to it being a spring support level.

Note the volume on the Friday, yet the price of $1.90 holding steadfast…. An excellent entry point with low risk.

But missing out on the trade does not mean I need to expose myself to unnecessary risk at a poor entry level.

Rather waiting for another opportunity is the best strategy for me.

That opportunity may be found in RMS Ramelius Resources (barring any bad news that I am not aware of):

Ramelius Resources

Given that the Van Eck gold miner’s ETF was sold down on Friday, it may be one of the best opportunities in relation to the other miners which are currently still shining from the recent rally.

Keeping an eye on this one.

 

In the short run *sip*Coffee and trading

I expect some  weakness in the miners in the event the dollar, yen, euro and bond market reverse from their support and resistance zones. RMS is at or just below support which may offer a low risk entry into an otherwise volatile and fairly unpredictable market.

Think Better.

|the Merchant

10 Comments

  1. TJ

    Your bearish thoughts for miners coincides with my cycle guys view, so late April till early May it is for me till proven otherwise.

    Reply
    • the Merchant

      I would add that trading the individual stock with its own support and resistance is paramount. EVN was at it’s support price of $1.90 and even in bearish conditions may struggle to get there again. So keep an eye out for the stop runs for lower risk entries.

      Reply
      • TJ

        Thank you, point taken!

        Reply
  2. Anonymous

    A Head and Shoulder pattern analysis is never complete without looking at volume !!

    Reply
    • Anonymous

      Ooops,should say WITHOUT

      Reply
    • the Merchant

      Now it makes sense 😉
      Well, we’ll have to trade it in real time…let’s see how volume evolves, however, it would need to incorporate volume on the currencies and bonds too. Gold is not an island 😉

      Reply
  3. J

    Great report thanks!
    Novice question, but why do you trade miners as a proxy for the gold price rather than gold directly? (CFD’s on spot gold for instance)

    Reply
    • the Merchant

      Hi J 🙂
      Miners move 3%-10% for every 1% move in gold.
      A miner like MOY moved from 18c to 34c in 3 months. That’s almost double gain.
      To achieve that in gold direct it would need to double from $1100 to $2200. Clearly there are many obstacles between Gold now and double the gold price.
      The time frame is also far greater.
      If the gold price doubles, gold miners will increase in value exponentially…
      So it’s like trading leverage in a way on the gold price.
      I do purchase gold Bullion, however, it’s more about a store of wealth over a long time frame.
      Hope that answers the question.
      |the Merchant

      Reply
  4. Boudicca

    Hey Jack!

    Thank you for another insightful analysis of the current status of gold. Gold rapid rise from the very second of the interest hike
    announcement is a red flag to me. It will be interesting to see how Au’s price pans out this week.

    Good on you for taking time to attend your charity activities. Raise heaps!!

    Reply

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