Miners are overreacting to the downside as gold is trading just 0.25% below yesterday’s close. GDX gapped higher at the open and prices are trading below yesterday’s lows, a bearish engulfing day is likely. I’d be surprised if this were the end of a counter-trend bounce for two reasons. First, I think the dollar has to drop a little further before making a cycle low. And secondly, this rebound never filled the large gap starting around $19.70.
If today’s move is the end of a counter-tend bounce, then there should be follow-through lower tomorrow and eventual breakdown below the short-term (blue) trendline. However, If today’s move is just profit taking and a temporary reaction, then miners should close higher tomorrow and move to new rebound highs by Thursday or Friday.
Whatever the case, we probably need to respect today’s bearish candle formation. If prices don’t recover significantly before the close, I’ll take an offsetting position in JDST and DSLV as a hedge. That would square my holdings and prevent additional losses if miners were to break lower. If miners fail to follow-through to the downside, I’ll remove the hedge in a few days.
I’ll update again around 3:30 PM.