Yesterday we saw another big daily decline and it served as an additional confirmation that taking profits on long positions and entering short ones on Monday, at 2 p.m. (when the GDX was at $15) had been a good idea. Will the short positions become more profitable in the future?
The only honest answer to this kind of question is “we don’t know," but we do think that it’s very likely. The reason is the combination of several technical factors, the similarity to October 2014 and the way the precious metals perform relative to the USD Index. Let’s start with the former by looking at the charts.
Charts courtesy of Stockcharts.com
In Tuesday’s alert we wrote the following:
(…) more significant resistance levels remain just above where gold is right now. The 61.8% Fibonacci retracement and the declining resistance line coincide at about $1,170, which is our current target for the yellow metal.
Gold moved to $1,169.80, so effectively it moved to the mentioned target level, before declining. More importantly, it declined on huge volume, which is a very bearish sign. Moreover, we saw a sell signal from the Stochastic indicator and it very often corresponded to major local tops in the past. The implications are bearish.
Gold has indeed declined in the past few days and the decline took place on big volume – which serves as a bearish confirmation. Moreover, gold broke (insignificantly, but still) below the short-term rising support line. The outlook remains bearish.