Special Update: Classic Selling Climax In Gold/Silver Mining Stocks!

Since the January 21st, 2015 reaction high, when gold and silver mining stocks were up about 20% year-to-date, losses in these same stocks have been historic. The average loss is probably more than 30% from the January 21st intra-day highs to this morning's intra-day lows. Here is a representative sampling:

Goldcorp (GG)                                  -28%

Junior Gold Miners ETF (GDXJ)    -33%

Philadelphia Gold/Silver Miners Index (XAU)   -22%

First Majestic Silver (AG)              -35%

Endeavour Silver (EXK)                -51%

Silver Miners ETF (SIL)                 -31%

While it's true that the underlying precious metals prices fell sharply during this period (Gold down 12%, Silver down 16%), the volatility in this sector is off-the-charts right now, especially over the last four trading days. Most Gold and Silver mining shares fell 5% per day, on average, over the last four days in a classic selling climax that ended at approximately 11:15 AM ET this morning. The V-shaped rally in gold and silver stocks after the intra-day lows were posted today was exceptional. By the end of the day today, one small silver stock (EXK) actually jumped 16% from its intra-day low. Most gold and silver stocks rebounded at least 5%, with the average closer to +8%.

In the interest of full disclosure, gold and silver mining shares now account for a 40% allocation of my assets under management. 75% of these positions were accumulated over the last four trading days. 

Was this morning's heavy selling in the gold and silver mining shares a classic selling climax? Yes, I think so! Underlying gold and silver prices were actually down on the day today, which strongly suggests that the extraordinary rebound of gold and silver mining shares in afternoon dealings was potentially a significant bullish tone change for this entire sector. My strong feeling is that this entire group is dramatically underweighted by fund managers, and that this sector is officially among the "most hated" again in terms of investors sentiment! Today's oversold bounce could easily represent the beginning of an extended advance lasting several quarters.

If today was a major low in gold and silver mining shares, how much upside can we expect over the near-term and intermediate-term horizons? If we define 60 days as "near term", then I think gold and silver mining shares could easily advance 50%, or more, on average. If we define 150 days as the intermediate term, then I think gold and silver mining shares could advance 100% or more from today's intra-day lows.

Daily chart buy signals were triggered by my computer trading system in the following gold and silver mining shares at today's NY close: AEM, AG, AXU, AU, AUY, CDE, EXK, FSM, GDX, GG, PAAS, PPP, RGLD, SIL, and XAU. And here are a few representative charts:

Gold Miner Shares ETF (GDX) Daily Chart with 3-Std Dev. Bollinger Bands

Silver Miner Shares ETF (SIL) Daily Chart with 3-Std Dev. Bollinger Bands

Philadelphia Gold/Silver Miners Index (XAU) Daily Chart with 3-Std Dev. Bollinger Bands

Bullish Relative Price Action In Gold & Silver Mining Shares

In mid-January I became concerned that the explosive early 2015 rally in gold and silver mining shares was overdone and therefore subject to a meaningful correction. Please see my January 20th post entitled "Is Gold Still The Most Hated Asset Class?". I personally liquidated all my precious metals position in favor of cash at that time.

Gold and Silver prices have broken sharply since their mid-January highs and have now retraced almost all the strong advance that had unfolded between early November and mid-January.

The most popular Gold ETF (symbol GLD) had rallied 14.5% from its early November 2014 low, but now it's up only 3.3% from that low.

The most popular Silver ETF (symbol SLV) had rallied 20.8% from its early November 2014 low, but now it's up only 3.8%.

Friday was a fairly significant down day for Gold and Silver prices as investors reacted to a stronger than expected February U.S. non-farm payrolls report, which will supposedly push the U.S. Federal Reserve to raise short term interest rates as soon as June 2015. While I have my doubts about the veracity of the latest employment data from the Bureau of Labor Statistics (BLS - where are the 40,000 confirmed job losses from the energy sector in the two monthly employment reports so far this year?), that's a story for another day. 

In recent columns here, I have offered the suggestion that the recent correction in Gold and Silver prices has about run it course (and that a new advance was ready to get underway). In fact, as of Thursday's close, March 5th, I had accumulated a 10% allocation in gold mining shares (mostly in GDX and GDXJ), with the intent to increase this stake to near 20%. Of course, I didn't anticipate the "slam" in precious metals mining shares that unfolded yesterday, Friday, March 6th. Most Gold and Silver mining shares were down between 5% and 10% yesterday in reaction to about a 2.5% drop in the underlying precious metal prices.

So where do we stand now? I added significantly to my gold mining shares yesterday afternoon and I also bought meaningful positions in two silver stocks yesterday (AG and CDE). My allocation to this sector is now 30% of assets under management. 

Despite the fact that Gold and Silver prices have given back almost all of their gains as posted in the November 2014 to January 2015 advance, most precious metals mining shares are still up sharply, on balance, from their late 2014 intra-day lows. Here is a representative sample of key stocks in this sector and their respective gains relative to intra-day lows posted late last year::

Goldcorp (GG)             +12.0%

Barrick Gold (ABX)      +13.1%

Newmont Mining          +32.4%

Major Gold Mining Shares ETF (GDX)       +12.9%

Junior Gold Mining Shares ETF (GDXJ)      +9.4%

First Majestic Silver (AG)    +46.7%

Coeur D Alene (CDE)         +49.3%

Gold ETF (GLD)        +3.3%

Silver ETF (SLV)        +3.8%

Bottom Line: I see the recent relative strength in the gold and silver mining stocks, as compared to the underlying precious metals prices, as VERY positive and bullish for the entire sector immediately ahead!

P.S. Weekly chart sell signals were triggered at Friday's close, March 6th, in several major U.S. stock indexes as well as several sector indices. In the interest of full disclosure, I missed the entire decline in U.S. stock prices this past Friday and I do not have any short positions right now. Weekly chart buy and sell signals are the most reliable signals from my computer-based trading system. Here is the complete list of weekly chart computer-based sell signals in major indexes and sector indices at Friday's close, March 6th:

Dow Jones Industrial Average (DJIA)
Dow Jones Industrial Average ETF (DIA)
Nasdaq Composite Index (OTC)
Nasdaq-100 Index (QQQ & NDX))
Russell 2000 Index (RUT)
Russell 2000 Index ETF (IWM)
Russell 2000 Value Index ETF (IWN)
Morgan Stanley High Tech Index (MSH)
Philadelphia Semiconductor Index (SOX)
Semiconductor ETF (SMH)

Dow Jones Industrial Average Weekly Chart with Computer-generated Buy & Sell Signals

Nasdaq Composite Index Weekly Chart with Computer-generated Buy & Sell Signals

Russell 2000 Index Weekly Chart with Computer-generated Buy & Sell Signals