The $CDNX is as close as there is to a Jr Gold Miner's index. It looks way overbought:
What makes it overbought [looking at rightmost blue rectangle]?
- Look at that long string of white candles going parabolic! And they are all outside of the bollinger bands.
- Look at that RSI which has been over 70 (green) for more than a week and is around 85!
Now let's look at the other two recent cases where this index has become overbought (see the leftmost two blue rectangles). They looked just as overbought as the $CDNX is now. In both cases the jig was up the first day after a non-white candle came out. In the first case there was about a week of consolidation and then a serious decline took place (13%). In the second case there was about two weeks of consolidation and then a serious decline (21%).
I expect that I'll be selling my Junior Gold miners hard into the close of the first day (probably today) where a non-white candle is forming. There's lots of reasons not to:
- Emotionally, I don't want to do it. And, the other gold charts are pretty bullish.And silver is pushing thru that really tough resistance at $20. Its strongly correlated with gold miners.
- And fundamentally, the gold outlook (and the expectation of making profits for gold miners) is pretty bullish.
- And, its expensive because of how illiquid they are. I will probably pay more than 5% to get out and get back in.
I wish there were a way to hedge the stocks that I have against this kind of drop. The best I can think of is to buy puts on things like the GDXJ.
Do you have any thoughts on how to hedge Jr gold miners (especially Jr producers)?
Do you have another index for following Jr Gold Mining producers?
Finally, do you buy this overbought argument? If not, why not.
I've got my finger on the sell trigger, how about you?
Leave me a comment.