Keeping recent metals move in perspective

The last couple metals-positive trading sessions have taken back some of the recent losses in metals and in the GDX ETF.  USLV that I started buying at $62 fell to as low as $44 before bouncing to close at 53.59 today.  There are significant percentage moves going on here but all of it is miniscule in the big picture.

Having a look at the GDX chart of the past 2 years can help keep things in perspective.  The chart has been tumbling with little rest for a long time now.  The recent move broke out of a tiny little ending diagonal way at the bottom there but now there will be a series of resistance points to break through before anyone even starts to believe that the bear market is over.  The blue circles mark all of the breakout attempts that have been going on fro the past 14 months or some.  In fact, I thought there was a good chance of breakout at the 2nd circle up from the bottom.  Look how it would have resulted in a nice inclining double bottom.  That would have made it easier for longs to bid up the price.  Instead, it hit that downsloping trend line and bounced down.

Metals (and GDX) could have already bottomed.  Alternatively there might be one more wave down.  These charts are not well formed.  The herd is unsettled, confused here.  The momentum players will not show up until clear momentum is established and for that to happen the chart must break through the red resistance line.  The could happen within the bottom blue circle or we could see another bounce down.

But no matter what happens, this is going to bottom soon and so here is a sure win strategy: forget trying to catch the absolute bottom.  This is entertaining to do but not the best gambling strategy.  Realize that this has gotten beaten into the dirt, that it could get beaten down some more but that miners are not going to stay oversold forever.  So a reverse tapered dollar cost averaging strategy is a good bet here.  Start with a 10% purchase ASAP just to get your toes wet.  If this goes down to $18, throw in 30% more.  If it goes down to $16 toss in another 30%.  If it goes down to $14, go all in with all of your intended purchase amount.  If it goes below $14, especially in a rapid shakedown panic sell, start using margin.

If it breaks out here, buy 30%.  If it back tests and holds buy another 30%.  If it makes a higher high past that, go all in your intended purchase amount.  And then never sell for a loss.  Don't get shaken out of the tree at these low levels because all these stocks are cyclical.  Wall St has to run them up and down above and below their reasonable valuations in order to fool people out of their money.  That's just what Wall St. does.  That's how it survives and profits.

There's an old saying, buy when there's blood in the streets.  Gold miners are more than a little bloody right now.  It doesn't mean they can't go down for another 2,3 maybe 4 months.  But they will not go down forever and when they bounce back up it will be fast and furious.  The percentage gains will be fantastic.  Some time ago, I wrote that solar was a screaming buy.  I had been watching it plummet and plummet for a long time. But I knew it would not stay down forever.  The chart seemed pretty clearly at a 5th of a 5th so I took the risk and made the call.

The GDX chart is not so easy to read as solar was so I cannot call it a screaming buy.  It could have another wave down.  We will know if this is going to happen by whether or not it can break out of the bottom blue circle.  Maybe the chart will provide more clarity then.  So while GDX might not be a screaming buy, I think that time will show that it was actually a good buy or even an excellent buy at these prices.  There is no doubt in my mind that we will see GDX back in the $30s within 18 months, probably much sooner.

We are going to know a lot more by the end of December.