Well, I was wrong. It formed the next day, August 7.
You can see it here on this chart of the Market Vectors Gold Miners ETF (NYSEARCA:GDX). Notice the spike low on August 7 and how it penetrated and closed below the uptrend line.
Then the next day the GDX surged back above that uptrend line, exploding 9.08 percent higher.
That kind of move — plunging below an uptrend line and immediately and strongly reversing higher back above it — is typically only found at major lows.
So yes, I’d say the cycles were on the money and we have the potential for a major low. To confirm that low, I’d like to see GDX close above the downtrend line shown on the chart.
You can see the same type of action in this chart of the ARCA Gold Bugs ETF (HUI). Note the fake out low and the 9.02 percent surge that followed.
A close above the downtrend line on this chart would confirm a major low for senior miners, which this ETF tracks.
You can also see it here on this chart of the Market Vectors Junior Gold Miners ETF (GDXJ). Again, notice the fake out move into a low followed by an amazing 15.35% single day surge in the most speculative junior miners.
A close above the downtrend line on this chart, and junior miners are off to the races.
So the two most important questions now are:
First, is this the MAJOR bottom for mining shares, and if so, what kind of upside potential could there be over the short and long term? And …
Second, if gold and silver remain weak and head lower into September — as I’ve been warning — won’t that destroy the potential for a major bottom forming now in mining shares?
Yes, we indeed have the potential for a MAJOR low in the mining sector. As noted above, the only remaining confirmation would be a close above the downtrend lines shown on each chart, for each of those mining share ETFs.
Assuming that happens, the short-term potential — say over the next six months — is as much as a 50 percent move. That’s not chicken feed.
Over the long-term — the next three years — I think the potential is extraordinary. The right mining shares should double, triple and even quadruple. Select explorers and junior miners should do even better, and multiply your money several times over.
|Mining stocks could multiply your money several times over during the next three years. But you must be patient before buying.|
As to the second question, my models do indeed still show the potential for gold and silver to slide going into September and test the prior major lows or even spike lower to new lows.
But here’s the key you need to know: Don’t buy into the conventional wisdom that mining shares and gold and silver have to bottom — or top — at the same time. More often than not, they don’t parallel each other at important bottoms or tops. Instead, they do their own thing.
This is very important to understand. But not in the way you’re expecting to answer. Let me explain.
I don’t know precisely why mining shares and the underlying metals top or bottom at different times. There are a variety of reasons one can come up with, probably all valid, but in the end, no one really knows why.
The important point is this: As I noted earlier, don’t assume anything when it comes to the markets. Don’t have any preconceived notions of what they can or can’t do. Or what one market or sector can do versus another.
When you do that — and you have preconceived notions or accept commonly held beliefs — I can guarantee that it will trip you up and cost you way more money than it will ever make for you.
That’s always been true in the markets. Ask experienced investors or traders, and they will tell you that just about the worst thing you can do is accept commonly held beliefs or have preconceived notions.
That’s especially true with today’s markets. We are still in a financial crisis. We are in an era of drawn-out sovereign debt crises which can turn the markets — and commonly held beliefs and market relationships — on their heads and inside out.
I don’t want that for you. I don’t want you turned upside down and inside out. I want you with your feet on the ground, thinking objectively and independently. That’s how you will best protect and grow your wealth.
I consider it largely my job to help you do that. It’s why I am always challenging market opinions … often taking a contrarian’s point of view … and why I spend the majority of my time busting all the market myths that are out there.
There are many of them. And the simple truth is that most of what you hear from the talking heads in the financial media is pure garbage.
That said, I will always endeavor to help you see the world a bit differently, so that you’re not sheep led to slaughter.
Right now, here is what I recommend in regards to the miners: Be patient and wait for the above ETFs to close above those downtrend lines that you see on the charts. It’s the more conservative approach, but it should prove to be a nice way to get back into the mining sector.
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