A few weeks ago I took a look at the Precious Metals space from the top-down for Premium Members of Allstarcharts, concluding that despite stretched sentiment there’s very little evidence that suggests being long this space over the intermediate or long-term. With that said, today I want to discuss the developments in this space since then that have shifted the short-term reward/risk in favor of the bulls.
The most important change that’s occured is that we now have a way to define our risk on the long side using the “failed breakdown and bullish momentum divergence” approach we use so often on the blog.
To illustrate this, I want to take a look at Palladium which has been the clear leader in the Precious Metals space for years. Roughly a month ago from today prices made a lower low and quickly reversed, with momentum diverging positively. Since reclaiming their July low, prices have rallied roughly 14% and 18% from intraday low to intraday high. We’re now seeing this pattern develop in the rest of the space, creating the potential for similar moves there.
Click on chart to enlarge view.
First up is Platinum. If prices are above 806.30, then there’s potential upside toward its downward sloping 200-day moving average and former support near 873.
In Gold if we’re above 1,205, then there’s potential upside to 1,283.
If Gold Miners are above 18.15, then there’s potential upside to 21.
Junior Gold Miners look similar, with potential upside toward 30 if prices are above 27.40.
Silver Futures have potential upside toward 15.67 if prices are above 14.35.
If Silver Miners can get above 23.90, there’s potential upside to 28.40.
If Junior Silver Miners can get above 9.00, there’s potential upside to 10.25.
Copper is a bit of a bonus because it’s a Base Metal, not a Precious Metal, but it’s setting up the same way. If it can get above 2.68, then there’s potential upside to 2.96.
Copper Miners have potential upside toward 25.10 if they’re above 20.41.
The Bottom Line: This is the short-term shift that we’re seeing in Precious Metals and their related stocks. Due to the correlation in this space, if this pattern works in one of these, it’ll likely work in all of them (or most), but not necessarily to the same magnitude. If the pattern fails in one, it’s likely to fail in all (or most) of them.
Nobody knows whether the counter-trend rallies this pattern may spark will be a short-term bottom that should be faded or if this is the beginning of a longer-term bottoming pattern. That information will only be available in hindsight, but we can watch for shifts in the weight of the evidence along the way to identify the most probable outcome. If this is the start of a long-term bottom, then we’ll have plenty of time to adjust and capitalize on the new trends without having to catch the exact price lows.
With that said, the negative sentiment readings paired with a failed breakdown and bullish momentum divergence suggests that erring on the long side is best if prices are above their respective risk management levels.
Thanks for reading and let us know what you think!