Just a quick update as things are moving quite fast in the PMs.
In short, based on today’s intraday action, I think that speculative LONG positions (100% size of the regular size of the position – so just a normal position, not a particularly big one) in junior mining stocks are now justified from the risk to reward point of view.
The reason is that while all the short-term bullish indications that I outlined in today’s regular Gold & Silver Trading Alert remain up-to-date, we just saw additional strong bullish signal for the short term.
The signal came from the relative strength of the precious metals sector. The USD Index just moved to new highs, touching (precisely) 108. This might seem bullish for the USDX and bearish for the PMs at the first sight, until one compares this to what happened in gold, silver, and mining stocks.
Even though the USDX moved to new short-term (and long-term) highs, gold is (at the moment of writing these words) down by just ~$3, silver is down by just $0.03, and the GDXJ ETF is down by just $0.15 (0.48%). And this is happening while the general stock market (S&P 500) is moving lower (1.27% decline so far today).
This is a sign of strength in the precious metals sector – a quite clear one. This, combined with how close the USD Index is to its resistance level (in fact 108 – being a round number – might have already triggered a reversal) and a corrective rally here would be similar to what happened at similar juncture in 2013 makes me view the current short-term outlook for the precious metals sector as bullish.
Since junior mining stocks are most oversold from the short-term point of view, I prefer to go long this part of the precious metals sector.
How high can the GDXJ move? Quite likely to $34 or so, as I already explained in today’s regular Gold & Silver Trading Alert. However, that’s my initial estimate, and it might change as this trade unfolds.
So, to summarize, I’m going long junior mining stocks with the initial plan to keep the long position open for several days – 2 weeks (depending on how fast the PMs correct).
If one is seeking leverage, one might consider using JNUG, for example, but using leverage is definitely not something that is recommended to everyone. The unleveraged option would be simply to go long the GDXJ ETF. Naturally, that’s just my general opinion about the market, not an individual investment advice.
As always, we’ll keep you - our subscribers - informed.
Thank you.
Sincerely,
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief