Remember how mining stocks soared on Valentine’s Day and how we wrote that a rally is not necessarily bullish? Guess what – this rally has been more than erased. Miners not only closed below the February 14th opening price, but also below the February 13th and 12th closing prices. Mining stocks big rally turned out to be nothing more than just a regular 50% retracement during a decline – something that we saw many times in the past and that we described as likely. But, since the rally was rather inconsequential, then perhaps the decline is inconsequential as well?
It’s not likely because of the context. Gold is still relatively close to its recent high, but mining stocks are very close to their recent low. The latter are underperforming, and Valentine’s Day rally was just a verification of the breakdown in the HUI to gold ratio. Let’s take a look at the details, starting with the currency market (charts courtesy of http://stockcharts.com).
During Friday’s trading, the USD Index moved very insignificantly below the previous 2018 low and rallied back up, invalidating almost all breakdowns below important support levels. The remaining breakdown was invalidated yesterday in a clear way, so the outlook improved further.
The chart above shows how significant the mentioned support levels actually are. Key tops and key Fibonacci retracements based on the key price extremes. Each of them is important and their combination is even more important. The same goes for the invalidation of breakdowns – the implications are bullish.