Monday, April 6, 2015

[GDXJ] threat model

In this post I provided the model below.

So far it appears that the red model is taking place.  We go a gap up over an important trend line and I think that is meaningful.  So my primary model remains the red model above.  But how many times have the juniors just gone lower and lower, endlessly and seemingly unfairly lower?  It's like the weight of the investing world is sitting on the chests of the junior miners.  Because of this, until we get 5 solid waves up, I'm going to remain paranoid.  But paranoia needs triggers and models or it devolves into insanity - endless fear of the unknown.

So below I present a model that we should at least respect if not fear IFF its triggers get tripped.  This bottoming has been anything but usual.  I would have felt more comfortable had we gotten a lower rail kiss and then a throw under because it would leave less open questions in the model.  At the same time I realize that failing to do so is an indication that shorts are anxious to cover and longs are anxious to buy.

What the model below says is that the falling wedge is not complete yet.  It says that we are very close to the end of the b of 5 wave and that one more long-devestating sell off can occur to break below the lower rail before really finding a bottom at $18 which happens to be 10% of the 2011 price.  That's folks, would be a sell off in the juniors that is bigger in percentage terms than the 87% collapse of the DJIA back in 1929-33.  Even without that final down stroke we are already very close to great depression numbers here.

I will personally be suspicious of anything that causes GDXJ to fall back into the channel of that potential HT.  Sell if it breaks the top rail down and buy back if it pops back above.

Another thing to look for is that we are supposed to be in a 3rd wave up right here.  The buying should be relentless in order to not give stragglers to the long side a chance to breath.  Shock and awe is what keeps the maximum number of market participants fearful as the shares climb up and begin to appear expensive relative to recent prices.  If we do not continue to get solid upward pressure here then it is another sign that something is playing out other than what the primary model says should be happening.

But the bottom line is the price action.  A fall below that lower HT rail at about $22 is a clear sell signal but I would not even let it get that far.  Anything below $24.10 is a "sell first and buy back later if false alarm" situation IMO.

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