Everybody Back in the Pool at the Bottomz Inn!Friday January 13, 2017 13:41
What a sneaky mistress this precious metal miner sector can be while making major bottoms. In past missives, I have continuously mentioned how important the $20 level had been in the GDX during what was a brutal four-month correction into year-end.
The more than 40% drop tested the meddle (pardon the pun) of most sector investors as the $20 area was indeed breached on the weekly level, which then forced me to go into risk management mode with a 50% cash position in my miner portfolio.
However, while many traders were enjoying the holiday season as the sector roller coaster year came into the last two weeks of trade, the miners started to catch some bids as tax loss selling began to wane. I mentioned this in my last article of the year and decided to begin scaling into new positions on my miner watch list after previously stating I was holding out for sub $1100 gold before committing any more capitol to the sector.
In the last week of trade, on higher than normal volume, the GDX came back to form a very bullish hammer and diverge from sideways trading gold well above the all important $20 level on the monthly, quarterly, and yearly charts! This is extremely bullish and had all the makings of a possible year-end bear trap.
After skimming all the charts on my watch list during the last week of trade in 2016, I began to realize we just might have book end bear traps for the year. Sure enough, right out of the gate this week to begin the year the miners began to really take off as they continue to rise and also lead the very over sold gold price higher.
During the last few minutes of trade in the GDXJ on January 4th, there was a sharp spike in buying so I added a few more positions at the close. This became the tell for what was about to occur overnight as the US Dollar began to roll over very hard, triggering more short covering and value investor buying in gold and silver.
While the gold price zoomed above major resistance at $1180, the GDX and GDXJ had huge moves as they both gapped up and closed well above their respective down trend lines and 50 day moving averages. The sector has opened weak on some profit taking as the all important Non-Farms Payroll Report (NFP), which was released this morning, has come in below expectations. This weakness should be bought as I believe the worst case going forward would be a back test of the 50 day moving average in the GDX.
The sector leaders NEM, ABX, and MUX for the juniors, all have very bullish charts now and I believe they will continue to lead the sector higher into next week.
We still need a weekly close above the $25-$26 level in the GDX to confirm this bottom, but I think it is safe to begin scaling into your favorite miners on weakness here as I believe the bottom is in as the sector has most likely seen the lows.
As an aside, in December, I also began scaling into a few Uranium miners as the sector has mostly traded sideways into year-end as the price of uranium lost 45%. I believe this was a good indication of the miners being sold out as the sector has been in a nearly six year long brutal bear market with a few failed rally attempts.
Many stalwarts of the industry have now formed what appears to be solid eighteen month bottoms on their respective weekly charts as a few began breaking out of them this week. I remember the haughty days of the last uranium bull as many made a small fortune in a few select names, as I did not do too bad myself. The way I like to play this sector is to have 10% of my miner portfolio in a basket of 5 or so names of explorers, developers, and producers, as well as a project generator.
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."