Superdramatic moves in the Miners today

Jim H
By Jim H on Wed, May 29, 2013 - 4:23pm

With Gold and Silver moving up modestly today, and the stock market moving down, the mining equities were on fire for some reason today.  Seabridge Gold, a bellweather Gold-in-the-ground play that I watch, was up 10.9 %.  GDXJ,. the junior miners ETF up 5.2%, GDX up 4.7%.  IAG, with its 4.9% dividend, was up 6.8%.  Lots of action.  What does this portend?  If it's anything like the last few weeks, you will be whipsawed right back down soon and further lose your taste for investing in miners.  I am personally sitting in cash waiting for a more clear signal, like a strong and lasting break above 1400 for Gold, before I play in the casino again.  Even then, I will be doing it with tight stops, or my finger hovering over the sell button   : )  

9 Comments

davefairtex's picture
davefairtex
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miners & gold today

Today's miner move was definitely impressive.

I believe it is possible for gold mining stocks to rally even if the price of gold itself moves sideways, simply because the GDX:$GOLD ratio has been beaten down so low, any rebound of that ratio will lead to upward moves in mining stock prices.

I think that a decline in GDX:$GOLD ratio is the market's way of saying two things:

* gold is getting more expensive to mine for a variety of reasons, and

* the market thinks that the price of gold will probably drop further

So if the market starts to conclude that gold has bottomed, it may well result in a bounce in the miners without requiring a rise in the price of gold itself.  And the number of shorts in the mining sector will fuel the bounce higher.  I believe we're seeing that process now.

Most of the dramatic moves in the past few months have been one-day wonders in the context of a steady move down, probably almost entirely short-covering.  One reason for hope is that now, for the first time in months some of the mining stock prices I follow have moved above their 20 day moving averages - and some have even moved above their 50 MAs, even while gold and silver are both pretty clearly below their respective 20 EMA.  I interpret this as constructive.  That's because its generally safer to buy something on its way back up, rather than buying something on its way down, and moving averages are a good way of noticing this in a disciplined way.  (Other significant points are moving average crossings: 20 EMA crossing the 50, 50 MA crossing the 200; lots more money will come into the sector once those moving averages start behaving better.  The pros don't like buying until after the trend has changed)

Volume is an indication of seriousness - a high volume move is seen as "more significant" as an indicator than a low or normal volume move.

For some reason, silver miners that I happen to follow are doing a bit better than gold miners, although some junior gold miners are doing well comparatively.

Silver Miners - ranked in order of relative bullish price action:

HL: through 50 MA today, massive volume

SSRI: through 20 EMA, massive volume

FSM: above 20 EMA, good volume

SLW: at 20 EMA

AG: below 20 EMA, decent volume

PAAS: below 20 EMA

You can also chart any of these relative to the index: HL:SIL will show that Hecla has been outperforming its peers.  Likewise, HL:SLV shows that Hecla has been moving up relative to the price of silver.

Gold miners - ranked in order of bullish movement:

PVG: above 50 MA, 20 EMA crossed 50 MA, decent volume

MUX: at 50 MA

KGC: above 20 EMA, 20 EMA acting as support

AEM: through 20 EMA today, good volume

IAG: through 20 EMA today, decent volume

NEM: through 20 EMA today

NGD: at 20 EMA today, good volume

AUQ: at 20 EMA

GG: at 20 EMA

AUY: below 20 EMA

ANV: below 20 EMA

Low-risk entry points for many of these shares is not after a massive day like today - watch and see how they perform going forward, and if any of them retreat to their moving averages, and find support on them, buying at that point is a better risk.  And if they fail support, sell and wait for the next entry point!

As mining shares rally, they will encounter selling pressure from people who, once they get "back to even", just want to get the hell out and never buy a mining share ever again!  This selling pressure means that once the short covering is over, shares may retreat, and it may take several attempts to move through resistance levels on the way back up, so there will likely be plenty of opportunities to get on board the mining train.

As always I say "likely" - because there are no sure things when the market is involved.

 

davefairtex's picture
davefairtex
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Posts: 5412
more bullish than Jim?

Its early, but it would appear we might have two consective days when gold miners are actually doing well.  Both gold & silver have moved up to their respective 20 day moving averages, which is also constructive.

I do find it mildly amusing that I appear to be more bullish (at this moment) on miners than Jim.  Thats mostly because of constructive price action, somewhat because of the crash wringing out the last of the sellers, and partly because sentiment is so awful.  Jim himself is a perfect example of this.  As a dyed-in-the-wool gold bug, he's not interested in buying right now, and even if he does, he's got his finger on the trigger to sell - and/or using tight stops to limit his losses.  Assuming he even buys.  If he feels this way, and he is most likely to be bullish on gold, how must "normal people" think of miners?  Do we imagine there are any of them left to sell?  Probably not many.  A long bear move destroys hope in the faithful - and that hopelessness plants the seeds for the rebound.

This sort of contrary sentiment isn't great for specific timing (sentiment has been bad for a while), but its helpful to identify areas where a turning point might be at hand.  You can then use moving averages to take some of the emotion out of the trade.

Its possible I'm early on this (a more conservative sort might wait for that 50 MA to look better), but I feel its a reasonable time to start looking for long entry points in miners that are behaving well.  Of course, just looking at the 20 EMA might have caused you to buy in mid-March, back when GDX was 38.  (It's 29 and change now, a 22% loss...ouch!  hopefully you would have used a stop, to keep your losses at 2-3%)

And that's why stops are always a good idea, just in case the positive scenario doesn't play out, and we get yet another low.

Last point.  There's no need to identify the dead bottom in order to make money.  Getting 80% of the move will do just fine, and it will avoid the emotionally exhausting repeated failed attempts to try  to pick the ultimate bottom during a bear market move.  One or two failures is fine - its the weekly failures that will end up leaving you in an emotional state where you won't buy the rebound when it finally appears.

Jim H's picture
Jim H
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True Dave - good analysis

I am very wary of this move... maybe more so than is warranted.  Jumped in and out of NUGT today for a solid gain, and made my first tentative purchases of SA and IAG with an eye toward rebuilding a longer term, diverse miner position.  It is not yet clear to me that this is not another head fake... though everything lines up saying that it is a bottom;  fundamentals intact, hedge fund Gold shorts at all time highs, sentiment at all time lows, etc. 

 

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 654
Much GRATITUDE to:

davefairtex and Jim h.  Can't thank you both enough.  These analyses are exactly

what I was hoping for when I created the Investment Group.  Not only the suggestions but even more important for me, and possibly others, is the TEACHING compnent on the market that is VERY helpful

(I'm new at this!)  Ken P

davefairtex's picture
davefairtex
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Posts: 5412
behaviors in pullbacks

Its like we're doing a clinic here.  From my lips to the market's ears.

Today we have a pullback day in the miners.  Its instructive to see how the various stocks behave during pullbacks.  All miners are not equal.  How can we tell?  Watch prices and volume.

ABX - a massive senior gold miner is bucking the trend and is up 0.85%.  It has a 21B market cap and yields 4.2% [although its losing money, has a bunch of debt, and clearly has some issues; early 2011 it was at 50, now 21].  Given the size of ABX, there is someone with some pretty big money in there buying even when gold itself is down by 1.2% and the GDX index itself is off 2%.  Daily volume on ABX is also decent too - 1.48x normal volume.  Big volume reinforces price action.  [I don't own ABX]

PAAS - a relatively large silver miner, down -4.5%.  It has $5 per share in cash, trading for around 12.30, but it is currently lower than yesterday's starting price.  In other words, PAAS gave up all the gains from yesterday, and then some.  AG, also a silver miner, similar story.  This isn't a great sign; people aren't stepping up to buy, they're taking profits from the move yesterday, and perhaps even going short.  [Sadly, I own PAAS]

Its generally a good idea to buy things that have other people buying, since its the big smart money that is going to eventually push the stock price higher.  And you can see the footprints of smart money in situations like this.  Perhaps AG and PAAS moves yesterday were largely due to short covering, while ABX's move today is likely all real buying from hedge funds and/or others.

Its also helpful to compare a miner with its index.  Is it underperforming?  Or outperforming?

This signal encouraged me to pick up more PVG (a volatile junior miner that has land and drill results and little else) a while back; back when the rest of the miners were getting hammered, PVG started to diverge on April 15th from the rest of the juniors (stockcharts: PVG:GDXJ) and its just never looked back.  You can see it is behaving relatively well today.  The only way that happens is when someone is in there consistently buying.

Of course PVG got absolutely hammered during the move down from Jan-April, so you can't just assume these relationships will remain constant.

 

budwood's picture
budwood
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Posts: 13
Silver prices next few weeks

Silver prices during the next few weeks will drop below $20/oz.  I'm sticking with SLZ for awhile.

Grover's picture
Grover
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Analysis or just a hunch

budwood,

That is a provocative prediction. (I hope you're right.) What is the basis for your prediction?

Grover

budwood's picture
budwood
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Posts: 13
Yes

Certainly, I hope not provocative; I try to maintain a low profile.  The basis is a hunch, my usual contrarian thinking and some analyses by people whom I trust.  All together, my money is where my opinion is - - still bearish.

There will probably be better points to pick-up PM stocks.  Maybe early September when Japan lanches a currency war (and other countries react).  I have ridden SLZ down from about $38/oz silver, so I still have some profit to play with.  My "money management" instinct limits my going full bore into investments.  I suppose that's not bad; I'm still here!

B.W.

budwood's picture
budwood
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What may be best

When prices of precious metals sink a bit more (think $18 to $19/ounce silver), I will be tempted to jump in on the bullish side.  When prices get into that area, we may see mining costs overwhelming prices.  Hence, my focus will be on the royalty streamers like Sandstorm, Royal Gold, FrancoNevada, Silver Wheaton, etc.  Those compamies have somewhat fixed operating costs, so will survive when some miners may not.  Thus, I am positive regarding the royalty streamers.  Royalty streamers' profits may be limited as compared to (some) sky high miners' profits, but the probability is that few actual losses will be realized.

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