The Curious Story Of The Miners' Breakdown

What we previously wrote about mining stocks’ breakdown and yesterday’s upswing, might seem like something that invalidates it or something that’s just nonsense. In reality, it’s one of the common patterns that we see after breakdowns – the price comes back to the previously broken level or line in order to check whether it’s able to get back above it. If it’s not, the breakdown holds, and it becomes verified. This increases the odds for decline’s continuation. Conversely, if the move higher takes the price above the certain level or line, the breakdown becomes invalidated and the signal for the opposite side (here: bullish) is created.

What if both: verification and invalidation take place at the same time? This can’t happen with regard to the same line, but if a given line or level is considered based on different perspectives or different prices (intraday, daily closes, weekly closes, monthly closes, quarterly closes), the “same” line might actually be slightly different. Which indication should one trust more in this case?

Of course, there are no certainties in any market, but in general, the more long-term-oriented a picture is, the more important the signals coming from it. Consequently, ceteris paribus (all other things being equal), the more long-term-oriented indications are likely more important.

With the above in mind, let’s take a look at what happened in the gold and silver stocks yesterday.

The GDX ETF invalidated its breakdown below the rising intraday support line, which could be viewed as a bullish sign, but…

GDX’s daily chart (which is twice as long-term as daily candlesticks include two 4-hour candlesticks from the previous chart) shows that the line that’s based on more long-term price extremes actually held. This means that the breakdown wasn’t invalidated – it’s being verified.

The above chart also shows that a pause and a small comeback is relatively normal after the major tops and initial declines. Please note what happened after the February top, after the March top, and after the May top. The same thing – a daily pause. This perfectly fits yesterday’s comeback to the previously broken rising support line, which now turned into resistance.

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 also analysis of what happened in gold and how it relates to the critical developments in the USD Index.

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Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits: Analysis. Care. Profits.

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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