In previous VRA Updates, I’ve covered the MSM and their “official” reason for the sell-off in precious metals and the miners. Hint: their “fear” is higher interest rates…a subject we have addressed from all sides in the past…and a subject we have completely debunked, in the past. The three best bull markets, in modern times (last 40 years), have occurred when rates were rising.
For now, let’s take a look at what I believe represents a near perfect selling climax…because I believe we’ve just had one in GDX (miner ETF). A selling climax takes place at the back-end of a correction. Their personality is extremely high volume, huge large-block selling pressure and a brutal day of negative percentage losses. Some might call this a shake-out…but they would be wrong. Selling climaxes are singular creatures…they resemble nothing else of their kind.
Here’s what I see:
1) as we work down the chart you’ll see the price action at top. The pullback went exactly to the 200 day moving average (dma), which is the rising red line. For technicians, this is THE most important moving average. “Bullish versus bearish” technical trend analysis is determined by this moving average.
For my theory of a selling climax to hold up, GDX must remain at, above, or just slightly below the 200 dma…at least for a few days. Then, it must once again begin to rise in price. If not, fresh selling will begin to appear.
2) in the second message box/circle that I’ve included, we see Tuesdays massive volume of 232 million shares…18% more volume than GDX has EVER recorded. If I am correct, the volume will remain light for the next few sessions(nothing like 232 m)…and then pick up steam again as the price moves higher.
3) The fact that we not only had a huge decline, with massive record-setting volume…and then add the fact that the drop took the stochastics to 90% +, extreme oversold readings (bottom of chart).
Combined, this looks like a perfect storm…when it comes to selling climaxes. These are high probability, highly trade-able patterns. When added to the fundamental reasons that I like PM’s and the miners, it’s my absolute belief that we can use this pattern for big profits.
This looks like a perfect selling climax.
Until next time, thanks again for reading…