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Trading Lessons

Junior Mining Stocks are Close to Breaking Downtrend

Commodities / Gold and Silver Stocks 2018 Apr 16, 2018 - 12:08 PM GMT

By: Jordan_Roy_Byrne

Commodities

A few weeks ago we wrote that it may not be Gold’s time yet but a few recent developments suggest its time could be sooner than we anticipated. Although Gold failed to breakout last week, we should note the positive action in the miners. Over the past seven trading days the miners have strongly outperformed Gold. That includes the juniors, which appear very close to breaking out of the downtrend that has been in effect for over 12 months.


In the chart below we plot the three major junior ETFs: GDXJ, GOEX (explorers) and SILJ (silver juniors). The juniors have trended lower since February 2017 but are now threatening to break trendline resistance. Since December 2017 the juniors have traded in an increasingly tighter and tighter range which indicates a break is coming very soon. Also, note how the 200-day moving averages are flat and no longer sloping lower. That reflects a mature correction and the potential for a new uptrend if the juniors break above resistance in a strong fashion.

GDXJ, GOEX, SILJ Daily Bar Charts

There are a few other things worth mentioning.

First, as we alluded to, GDXJ has strongly outperformed Gold over the past seven trading days. The GDXJ to Gold ratio has reached its highest mark since the start of February. That sudden relative strength is significant considering Gold is within spitting distance of a major breakout.

Second, one custom breadth indicator we track is the percentage of juniors (a basket of 50 stocks) trading above the 200-day moving average. This figure (currently 42%) has not exceeded 51% since February 2017. A strong push above 51% could confirm a renewed uptrend in the juniors.

If juniors are going to break out of their downtrends, it could mark the start of potentially a very large move. Gold, upon a breakout through $1375, will have a measured upside target of roughly $1700/oz. Although the juniors aren’t very close to breaking their 2016 high, they, upon a breakout would have similar upside potential. GDXJ, upon a breakout through $50 would have a measured upside target of $83.  

GDXJ & Gold Necklines

That potential measured upside target for GDXJ may seem extreme but for juniors its par for the course. Below we show an updated chart of our Junior Gold Stocks Bull Analog. By my data, juniors are well below where they were during the 2001-2007 and 2008-2011 bull markets. So if Gold breaks higher and is going to reach $1700/oz then juniors are likely to catch up to historical performance.

TDG Junior Gold Stocks Bull Analog

Although Gold failed to breakout (again) last week, the performance in the gold stocks did not confirm that failure. The newfound relative strength, if sustained over the next few weeks could signal that a sector breakout is much closer than previously anticipated. The juniors are very close to breaking their downtrend and that break could only be the start of a potentially massive move. In anticipation of that potential move, we have been accumulating the juniors that have 300% to 500% upside potential over the next 18-24 months.

To follow our guidance and learn our favorite juniors for 2018, consider learning more about our premium service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2014 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

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