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Thursday, October 9, 2014

Junior mining gameplan for today? Let me think about it here...

I need to puzzle something out for myself, and I'm doing it by posting here.

I posted the relevant end-of-day charts here.

Now. What to do today? I just finished a week of mocking PMs and juniors, so why all of a sudden should I buy them? Especially if I think the S&P has bottomed and I can make an easy 20% from today onward just by shorting $VIX (which may turn out to be wrong, sure, but right now I think the balance of probabilities is in my favour).

First of all, let's clarify. I don't want to buy GDXJ. I'm looking at (US tickers for all) RIOM or BTG - or hey, maybe SVLC or FSM if silver is also done collapsing.

Now, these stocks did pop yesterday afternoon, but I really do suspect it was just short-covering.

The market was probably strongly short junior miners, in the belief that gold was going to collapse to $1050 by end of year. And sure, that really is a good poisition to take as long as your thesis is correct.

I think the thesis was wrong, btw, because gold has not broken down: rather, US dollars went up in price. Gold in ex-USD has stayed in a 5% range for the past month, and a 10% range for the past 4 months:

So if Wall Street Whitey was short miners in the past month, he was short based on typical American ignorance of the price of gold and the existence of the outside world. No surprise there.

In fact, he was also short miners because he was extrapolating a very vigourous upmove in USD: but it is utterly stupid to believe the USD can appreciate forever at a rate of 10% per quarter as it has done.

Currencies don't move that fast. It's the same as a Shinzo Abe pop in the Nikkei, or the more recent Modi pop in the Nifty: too much too soon, and even if the thesis turns out to be right, the first derivative of the price move was still bullshit.

But see, according to the last candle on that chart above, gold also did nothing yesterday. The USD went down. That's all.

So fine. Then WSW covered his shorts after 2PM, and that caused a big pop because the order book was too thin to meet all the covering volume.

So I don't want to buy at the open, for sure: the buying met insufficient sell volume because (again) the first derivative was bullshit. That sell volume could come back over the next few days, giving us a better opportunity to get back in.

Unless, of course, the market suddenly begins to doubt that gold is going down anymore.

After all, for the junior prices to come back down, sellers need to come back in. But who's going to sell now that they see that their stocks are undervalued at these prices?

So gold needs to keep going up.

See, the problem here is that I am trying to convince myself not to use TA.

The fact is, I have a buy signal in BTG right now. Here's its chart:

BTG crossed above its downtrend-governing EMA(12). It did so on massive volume. In one single day the EMA switched to a positive slope.

In doing so it printed a candle that canceled out an entire month of downward price action, which made about 50-70 million shares worth of sellers feel really stupid. That means that remaining shareholders are not going to want to make the mistake the old sellers made.

OK, that's not TA, that's psychology: but TA is supposed to capture psychology, that's the reason to use it. The candles are nothing more than a representation of the actions and attitudes of buyers and sellers.

But dayum. I look at the BTG chart, at those features I just listed above, and am kicking myself that I was watching VIX yesterday and utterly ignoring the moves in GLD and GDXJ - even though I had them on my screen, I didn't even glance at them once.

Basically, that chart gave a big fat buy signal yesterday, so I am going to have to think long and hard about whether to buy a junior today. Cuz if the market's attitude re gold price and the future of mining profits have changed, then early adoption will make me money.

And the attitude has changed because the chart has given a buy signal by my criteria.

I could wait around today to see confirmation, of course.

We'll see.

Disclosure: no position as of yet, I am not a licensed financial advisor, you'd have to be a retard to buy stocks based on what someone writes on a blog.

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