Manic Miners



Well hello again.

Service as normal at Screwtape is being resumed after the emotional highs and lows of last week. By 'normal', I do of course mean 'technical analysis and philosophical discussion of precious metals as presented by five prosimians who like to use metaphors such as crème-de-menthe-drinking dung beetles'. So jolly well normal, in other words. And there'll definitely be no more underhand side-swipes or bitchy remarks aimed at the silverogosphere and its noble hosts.


Actually, after last week's excitement, I am, in all honesty, a bit disappointed to still be slaving away here at Screwtape. I'd been waiting all weekend for a phone call from Gonzalo Lira, whom I was hoping might offer me a lucrative deal to make podcasts for our ready-primed and pliable audience. I spent most of Sunday practicing my radio voice, and waxing lyrical into the mirror about how doom is upon us and silver will make Rockefellers of us all. But Mr Gonzalo 'What do we want? Hyperinflation! When do we want it? Now!' Lira never rang, sadly. Oh well, perhaps he's too busy fixing all the technical issues at his latest venture.

But I'm confident that I'll be asked to do a one-off pod-cast at Turd's instead. Mind you, he hasn't rung for a while either... Sigh... Where can they all have gone...?


Manic Miners

It can't be denied that the miners have not exactly been the best investment of 2012. From the September peak to this year's trough they fell on average 42%. Now that's not good in anyone's book. I'd personally had high hopes for them because the TA set-up looked pretty promising, but unfortunately the required move in gold did not transpire. Then the Eurozone crisis came back with an evil glint in its eye like a badger at an earwig convention at which drink had been taken. Needless to say, what happened to my mining portfolio was directly comparable to the fate of those earwigs...

Fortunately, the miners snapped back with some force in mid-May, and I was able to bail out of some previously pretty hopeless-looking positions. Rule #1 of trading: when your thesis is proven incorrect, get the hell out, and make no excuses about it. That way you live to fight another day. [See KD's excellent post on this, here, although it's his #2 rule. We can't agree on everything, you know..!] This proved to be the correct decision, as our Manic Miners then decided to give up another large chunk of their value throughout June. Currently I have no position in any miners. So is now a good time to get back in? Surely they're pretty good value at the moment, and we're all hoping for a good move in gold soon, aren't we?

Well, my new thesis, which will be tested of course by the only opinion that counts - the market's - over the next month or so, is that jumping back into the miners at this stage would be pretty foolhardy. Here's the chart for GDX, the main ETF for gold miners:


This is a pretty solidly bearish chart, I'm afraid: the downward channel has shown no signs of abating since gold was at its peak in September. There is perhaps some interesting support at 42.50 (and I predict a fall to at least that point, perhaps followed by a short-lived rally), but if that fails - which I think it might - then there's not a lot holding this thing up until back down at the previous low (39 ish) and then the bottom of the channel (36 ish, depending on how long it takes us to get there). Even if it doesn't fail at 42.50, we're then into a pennant situation, which doesn't look set to resolve until at least September. So why buy now, before we know which way the pennant might resolve (and with the added risk that the 'floor' of the pennant could easily fail at any time)?

It's always good to look at any chart from several perspectives, however. A quick Fibonacci analysis shows how strikingly well the decline in GDX has followed standard Fib retracement levels:


This chart could actually go into a Fib textbook. One can easily see the lines of support at each retracement level becoming lines of resistance, and a temporary trading range gets set up between them. Our Manic Miners went all the way down to the 0% retracement level, before rallying hard back up to the 50% level. Its footing then slipped, however, and now it's somewhere in no-man's land, which is not a comforting sign. It's difficult to objectively argue that a rally back over the 50% retracement line is more likely than a fall to (a) support at 42.50 and then possibly (b) the previous low at the 0% retracement. Rule #2 of trading: don't buy in 'no-man's land'...

The outlook is hardly any more promising for the silver miners. The chart for SIL (a major silver miner ETF) looks equally, if not more, bearish:


The downward-trending green line looks powerful in its commitment, and the indicators (RSI and Stochastics) seem to confirm that a move back down to meet the line is likely. Intriguingly, this line will very soon intersect with the full Fib retracement/previous low, and could (could) mark a major bottom in SIL provided that this horizontal line of support holds. If it breaks, however, then a major further breakdown in SIL could occur.


Bellwethers

When trading the metals and the miners, I tend to always quickly glance at a couple of 'bellwether' stocks before launching my trade, even if I'm not trading those stocks specifically at that time. Such stocks are often good indicators of how the broader market is going to move, and to what degree. Of course, they're not always 'right', and each trader prefers her own choice of bellwethers, but I would encourage readers to develop a sense for which stocks are better predictors of larger trends than others.

One well-known one for the PM complex is NEM (Newmont Mining Corp), which makes up the largest proportion of the HUI, in fact. If NEM were telling us that it is about to buck the downward trend, then I might be tempted to sit up and listen... But it isn't:


It's been flirting around the 50-dma for a couple of months, but hasn't broken it with any real confidence. Unless a rally comes soon, then I think the RSI/Stochastics' implication of another move down will be confirmed in the market action, possibly even all the way back to its previous low of the year. If it gets that far, then I'll be a buyer, as the oversold conditions will likely force some kind of rally. But there's quite a bit of downside between here and there, and the corresponding upside is unlikely to take us beyond the 200-dma. That's not the kind of risk-reward equation that turns me on, I'm afraid, and so my hands are staying firmly sat on for the time being.

A curious bellwether of mine for silver and its miners is AGQ - not the double-leveraged silver ETF, but rather Arian Silver Corp. The chart below is AGQ on the TSXV, as that's the one available on Stockcharts, but I prefer the LSE version. The reason I use Arian's chart is partly because I used to trade it (actually, invest in it - it was a company for which I had big hopes, all mournfully dashed), and partly because Sprott has invested heavily in Arian. So, out of all the silver miners, one might expect that Arian would get a bit extra support to its share price if the proverbial were to hit the fan.

Well, sadly that appears not to have been the case. Long-suffering Arian investors have found no real floor to exist in the share price, and each time they think a new low has been put in, they find themselves corrected by the market soon after. On the flip side, whenever there's a strong move in silver, Arian moves like the clappers - sometimes 10% or more in a day - and getting in at the right time can be extremely lucrative. That's why I used to like trading it, and I still do occasionally. But for now, where would you pick a bottom for Arian..?


Unfortunately for longs, this is a wickedly bearish chart, as the 50-dma has recently failed to cross the 200-dma and the two moving averages are now diverging. Lower lows are being put in, and any rallies are quickly sold off (and don't penetrate the 50-dma for more than a day or two in any case). The RSI/Stochastic seem to suggest another move down. The chart's just bloody awful in other words.

It's a shame, really, as it's a good company and it has impressive proven deposits of both silver and zinc. But for reasons I've never quite properly researched, their share price is especially sensitive to the silver spot price. Ironically, owning AGQ (Arian) is almost like owning a double-leveraged silver ETF... I actually wonder sometimes if people are actually trading it thinking that it really is the ETF..! [As an aside, I often wonder the same about RandGold on the NASDAQ (symbol: GOLD) ... But surely no-one's that stupid, are they..?]. Whatever the reasons for it, I've found Arian to be a good bellwether of future action in the spot silver price, and Arian's verdict as of today is 'get the hell out' - both of silver and silver miners.


Conclusion

The GDX and SIL charts must perform a quirkafleeg in order to have any chance of getting out of their bearish formations. This is, of course, entirely possible (as is anything in the markets): a sharp move higher in gold or silver (e.g. due to war in Iran, QE III or a further drop in the US' credit rating) would render the TA null and void, as various important lines of resistance would be smashed through.

But in the absence of such joy for longs it is important to be realistic about the fortunes ahead in the short-term for the miners. More pain, if you didn't sell earlier, and more waiting if you're waiting to get long again.


[FULL DISCLOSURE: I have no positions in any miners, and no plans to instigate any during the next few weeks. I have no position in physical silver. I am long physical gold, but may go short at any time and without notice.]

23 comments:

Jeanne d'Arc said...

Thanks as usual @Warren for the fabulous artwork :-)

Burpy Sheep said...

"I'd been waiting all weekend for a phone call from Gonzalo Lira, whom I was hoping might offer me a lucrative deal to make podcasts for our ready-primed and pliable audience."

Oh, Jeanne. When you're good, you're very, very good. And when you're bad, you're still pretty good ;-)

But when you're naughty, you're the best! :-)

Keep doing what you do. You're on the right trail.

zilverexmachina said...

Thanks for standing up against the shortsighted shallow relinut redneck fascist clique at tfmetalsreport, I really enjoy watching them dig deeper and deeper holes, I don't understand why the cool folks there don't see it.

KJ said...

jda, what happened to Turd's headline quote?! I thought it was a permanent keeper :)

as for mining stocks, I don't play in the paper realm so you'll forgive my indulgence with the following as I found the recent exchange interesting & figured I should play my part either as a disinformation agent or simply clueless. Perhaps disinformation agent & clueless? I digress.

I'll surmise Turd has forever been a subscriber to Ted Butler & Jim Willie who all repeat the same mythical fantasy stuff ad nauseum. And they draw one in, no? I remember when I started out reading about the gold/silver space, their writings, provided free from time to time for promotional purposes (can never have enough paying subscribers!), were quite captivating.

And then I grew up.

If the Turd is not in the business of making $'s & solely motivated for the purpose of helping prepare for hyperinflation, surely all that matters is the facts underpinning ones theory are correct; I can understand why Butler for example would never change his cracked foundation - he'd lose all credibility & revenue base.

But the Turd is not in the business of generating revenue. So should he not challenge those facts and assertions that have been shown to be just myths and fallacies, whether or not they jive with Butler/Willie & whoever else?

Or is it enough to say one agrees with Butler/Willie & that's that - and anyone who disagrees in any which way is a disinformation agent?

But this approach doesn't jive with what Turd is supposedly about & his stated purpose. Can the Turd not come about & say, for example, this whole pslv 30%+ premium = shortage notion was just pure hogwash? Perhaps he did, I only read the Turd very sporadically. Nonetheless, the point being surely he can come out & say I thought X but it's really Y since he should be indifferent to the outcome, any outcome.

And surely Turd knows when he says "read this" in reference to a Butler/Willie, etc. article, that implied is one may want to consider signing up for their newsletter & become a paying subscriber. And who knows what off the record emails go back & forth b/w the newsletter writers & the Turd - has he not become the ideal middle man for Butler/Willie, good intentions notwithstanding?

For the longer one sticks around the gold/silver space, the more one realizes paper trading is for the pros with $'s to lose (do the pros mostly go short?) & that wasting $'s on newsletters is better spent on things like, you know, physical metals.

It's easy to suggest those who think Screwtape is helpful are disinformation agents but it's another to look at the claims made by the Butler's of the world (for over a decade now) & challenge those facts & say, hey, maybe he is wrong about this or that.

Or is it easier & better to attract newbies (and help them get into buying physical metals) by being right for the wrong reasons?

Funky Tape said...

Ugg, why did I just do that? Had to read the first page of Turd's today after MFG part deux. I knew it would be a hoot and, of course, it did not disappoint. "Turd needs a vacation." LMAO, oh yea? From what!?!?

And, oh look, it's Tmosley telling everyone, for the upteenth time the COMEX is going bust and spot to $0. When this guy drives down the wrong street and gets into a head on collision, it never seems to occur to him he's going the wrong way no matter how smashed up he gets. It's a skill I'm not familiar with, but he's just so good I fell I should take notes.

Been watching the GDX, not interested in buying yet. Keep playing DUST in the mean time.

Speaking of Fib analysis. I bought it up about a month ago on another goldbug's blog regarding the miners (IIRC) and was told by this guy (I'm sure many of you have read the blog) that he didn't care about any "gay shit" such as that. So i just wanted to let you guys know that TA on the "paper" price of PM's is now officially "gay." Not that there's anything wrong with that....Oh, and this genius has also said (repeatedly) in the past that anyone who's not at LEAST 90% physical gold/silver is an "idiot" [or moron, whatever].

S Roche said...

I hope Victor has his GLD algo turned on...

zilverexmachina said...

Hello TF readers sorry we have to communicate over such a long distance, but I like many other dissenter can't post there so will post here in the pub.

It looks like mod jane is taking over turd talks metals too now. Good luck folks!

I dont have problems with turd himself as much, but the new signups for TTM, do they get 1/3th of their month fee back now turd takes a 10 day vacation?

Keep stacking phys

Duff said...

Oh, Funky Tape. Please, for the love of all that is holy, be referring to SGS. If there are others floating around like that freak-show I am vowing to never stray from my already bookmarked silver blogs (I remember the day I removed SGS from my list...it felt quite similar to the shameful cache purge after a lonely night's porn binge).
Also, I 2nd Zilverexmachina's sentiment. The brownshirt rhetoric going on at Turd's largely goes unchecked.
So keep up the good fight, you Commies!

Jeanne d'Arc said...

Thanks sincerely to all for your comments, all of which are genuinely appreciated.

However - and I know it'll sound weird of me of all people to say this - I think the 'Turd' stuff has probably been done, now, and the salient points have all been hammered home. And then hammered a bit more. I don't really don't want Screwtape to become just a forum for Turd bashers (ew - what a horrible expression...).

There's loads of other interesting things to talk about too, you know... such as - to pick an example entirely at random - my call before market opened on Monday that GDX would break through support at 42.50 and that SIL would return to the green line... ;-)

But don't panic, I'm preparing another silverogosphere post (not about anyone in particular), if that's your bag.

@Burpy Sheep: you got me into loads of trouble at TFMR, you know. So unfair... ;-) Am intrigued by what you mean about being on the right 'trail'. That sounds like very FOFOA forum-y language to me... and I'm afraid I'm not one of those chaps or chapesses. But send me an email if you know about things you think I should know about too... :-)

Best to all,

JdA

Jeanne d'Arc said...

Oh, and @KJ - I really miss the Turd 'headline quote' at the top of Screwtape too... :-( It was solid gold (pun intended). I guess one of my co-contributors considered it to be a bit too provocative.

And if there's one thing Screwtape tends to avoid, it's provoking people... ;-)

Jeanne d'Arc said...

[Sorry - I so wish there were an edit function on Blogger. The link to my email address above is incorrect. This is correct.]

victorthecleaner said...

S Roche,

GLD had almost replenished the puke of May 22 (albeit in several small steps without triggering a sell signal). For about a week, it has kept losing gold, again in small steps. No new buy signal either. The last signal was 'buy' on May 22.

Victor

Funky Tape said...

Duff - Sorry to disappoint, but it's not SGS. Does that racist, backwater schlep still have a blog? Was banned from there probably a year ago. Know what I said to get get banned? No QE3, no $50 moon shoot, silver to $26 again easily. HARSH!

No, this blog seeks to find THE GOLDEN lies in disinformation, making you think what you read on his blog is the TRUTH, but it's really not, he's just some dude from Colorado with a bad attitude. And I was wrong, the post wasn't about the miners it was about gold and QE following the $80 surge in gold on 6/1.

I said:

"gold ran up last Fri on pure emotion, stopped on it's downward sloping trendline from $1920 and now has retraced exactly 61.8% of it. We all know what happens to gold's 3%+ rapid moves.

You can't for a second think investors are willing to put their nuts on the line here. I see the buying pressure, but happy days are far far away."

His response:

"Physical buyers, especially Central Bank physical buyers, don't give a flying fuck about Fib fans, Fib retracements, moving averages, pivots and other gay chart patterns. They do give a fuck about things that matter fundamentally like the fact that the now-2nd largest producer of gold - and formerly the largest until surpassed by China last year - South Africa, reported a 12% year/year decline gold production.

Don't get swayed by the nonsense you read on most commentary posting aggregator websites..."

So there you have it. Chart analysis = gay. Guess he sees only pink and purple candles and stirs up deep-seeded repressed sexual tendencies.

It's so gay, in fact, that those that read charts can't see any fundamentals because the CURRENT PRICE ACTION doesn't matter. There's NOTHING about the CURRENT PRICE that would suggest ANYTHING about the FUNDAMENTALS cause those are a SECRET. Fucking crock of dogshit.

Then he goes on to shoot himself in the foot because EVERYTHING he posts on his blog gets twisted into the same con: "if you don't own gold, you're an idiot." Talk about worthless commentary.

I Wazere said...

Great people talk about ideas.
Average people talk about things.
Small people talk about other people.

just sayin'

S Roche said...

Thanks VtC, watching it closely.

S Roche said...

Homework:

The Fed on The Fed Effect:
http://libertystreeteconomics.newyorkfed.org/2012/07/the-puzzling-pre-fomc-announcement-drift.html

I'll get to it but maybe someone else has this already and can give us the The Fed Effect on Gold...

zilverexmachina said...

..and the smallest people talk about other people talking about other people?

bay said...

Pretty funny people saying such harsh things about Jim Willie, who I introduced to Turd awhile ago. I've known Jim for 12-13 years and have gotten his letter since the start of it. It is a fabulous newsletter and most of his predictions have been pretty good. Some of you have absolutely no idea what you're talking about concerning his views, and comparing him to Turd. Way off the mark and kind of stupid too.

Oh well, same old shit, different blog.

Good luck all,
Bay of Pigs

GM Jenkins said...

Bay: what were some of his correct predictions (ideally, unique predictions) and more importantly, what's his batting average? I'm not familiar with him (other than one article I read by him on 24hgold.com in December 2009 that proved utterly wrong), but I learned from TFmetals (correct me if I'm wrong) that he said Kennedy is still alive in Greece and his wife married Aristotle Onassis so she could be near him. My understanding is that as far as his original ideas are concerned, Willie throws so much fantastical shit against the barnyard wall that while some of it will stick by chance alone, most of it falls onto the floor, and frankly, some of us are too busy to be cleaning up all that shit off the floor.

Tony said...

Victor,

Perhaps if S Roche and I started a petition, you'd start posting a daily GLD puke update/indicator on your homepage. What do ya think?

S Roche said...

Tony,

Until then:

http://www.spdrgoldshares.com/sites/us/value/

Another 3 tonnes down...

Tony said...
This comment has been removed by the author.
Tony said...

Thanks S Roche... Another 7-8 tonnes down! Almost time to buy again.