Mining Sector Could Be Setting Up for a Sling-Shot MoveFriday October 14, 2016 12:15
As I pen this missive, the mining sector may have already began a reversal from the nasty sell off which accelerated into capitulation selling toward the highly anticipated non-farms payroll report (NFP) that has been released this morning. I believe this would depend on the market reaction to the report today. If not, then I expect a reversal from the 22 GDX & 190 HUI level by early next week.
The bears were able to run the stops below $1300 Gold this week with some help from a speech by Federal Reserve Bank of Richmond President Jeffrey Lacker this past Tuesday. Even though Mr. Lacker is a non-voting member of the FOMC, the speech was a major catalyst in triggering the algo-bots into selling a thousand tonnes of paper gold. When the computers take over after something like this happens, I believe it is best to wait until major support levels are tested before being brave and buying fishing line sell offs in your favorite miners.
This paper gold bear raid was perfectly timed as the commercial traders were loaded up on the short side. The Shanghai Gold Exchange has been conveniently closed this week as well, so there has been no Chinese buying to slow the selling. The fact that the reported gold holdings in GLD have yet to experience a substantive drop tells me this is just a paper gold bear raid. However, there is some good news for long side traders this week as the Commitment of Traders (CoT) report cut off date was Tuesday, so the figures from the $40 gold drop three days ago will be included in today’s CoT report. This report will be released this afternoon at 3:30 EST.
A 35% correction from the GDX & HUI summer highs could take place here as those levels are 21.50 & 186 respectively. These levels also coincide with the 50 week moving average which has yet to be tested during this young bull market. Comex gold closed just below the 200 day moving average of $1255 on Thursday but was able to hold the key “Brexit Bottom” level of $1250.
The sector is now fully entrenched in a sharp decline in which I warned readers to mentally prepare themselves for last week. I also mentioned last week this correction could possibly end in a “sling-shot” move as patient investors who missed the initial move off of the bottom have been waiting for a lower risk entry point in which to take long term positions. I believe many have been waiting for the aforementioned 22 GDX & 190 HUI levels to be tested before taking entry positions. The sharp sell off here coupled with this possibility could therefore create a sharp reversal very soon.
David Erfle is a 52 year old self-taught mining sector investor. He stumbled upon the mining sector in 2003 as he was looking to invest into a growing sector of the market. After researching the gains made from the 2001 bottom in the tiny gold and silver sector he became fascinated with this niche market. So much so that in 2005 he decided to sell his home and invest the entire proceeds from the sale into junior mining companies. When his account had tripled by September, 2007, he decided to quit his job as the Telecommunications Equipment Buyer at UCLA and make investing in this sector his full time job. He personally survived two bear markets, witnessed incredible sector changes and had to alter his investment philosophy numerous times in order to adapt to changing market conditions."