Renaissancemen.org

This one has bothered me the last two days. I think it’s “the real deal” this time, but I think we all saw what happened with Ukraine and the fear play. Gold skyrocketed, the miners followed. Then – everything seemed to drop off of a cliff. As much as gold appears to be great for the “fear trade”, what happens day by day as less banks are failing? Do people then feel more secure?

I can see BOTH a bearish AND a bullish case here. Which is why I’m so hesitant to go long – OR even go short. Let’s look at how this can be BOTH bearish and bullish – at the same time

Bearish case

First, we start with the fear trade that is going on with a macro sense. No banks failed yesterday, so less anxiety is there. As each day goes on, and less and less we hear about banks failing, the less “fear fuel” is added to the fire. What would this look like on a chart? Perhaps a strong move up…and sideways motion as you hit a ceiling where profits are being taken by longs trading, and shorts are defending as a point they feel they can push price down a bit. Which, is what we see.

In this case, I don’t necessarily like this triangle. Why? Two reasons…

From a technical view, we are so far above the 200dma on the daily chart that something is going to need to happen. The last time it was this overstretched? Ukraine invasion, and then it came crashing down. Before that, was the July 2020 highs, which were actually much more overstretched than now. You can also see a slight negative divergence with price and RSI.

While it CAN go higher, no doubt, this screams that it needs to digest this move a bit. This is appetizing to the bears. This is preventing me from adding to miners right now, at these levels, because to me some sort of pullback is imminent.

One could say, “we need a pullback” – and be really convincing with this.

If you look at this chart, from THIS MOVE, you can see we already hit the .382 with the $1940 move down. I was expecting perhaps a more traditional line like $1920 or $1880, but….gold don’t give a shit about my feelings. It almost looks like a move up happened, it touched a .382, and is now marching back up.

Bullish case

Using the above chart, you can see that this is a higher high and also a higher low. Stair step, if you will. While we don’t see banks failing every day in the headlines, there is a shadow out there now of not IF the next bank will fail, but WHICH ONE. I RT this chart yesterday. This seems to indicate the country is in a full out bank run to get their cash out.

So whether this red line goes deeper for April or stops, your guess is as good as mine. But I also saw another chart that a drain has been going on since September of 2022, which sort of lines up with this chart, and goes back to when gold was starting this more recent bull move from $1615.

With this banking stuff, if you were to go all out short based on a slight negative divergence in RSI and gold being “overbought”, you would get absolutely murdered on a headline tomorrow of another bank failing. So, there is trepidation there with shorting, as well.

With respects to ADDING here, I went back to the 2001-2011 bull run and saw that anytime RSI got near 50 for gold, you were seeing buying come back in. Strong dip buying was happening. In the case of RSI, you can reduce RSI by price going down OR wearing it off over time. The compression triangle appears ready to make a move, perhaps today or tomorrow.

I’m not going to get into the LT bull case here, as I go over that all the time. Rather, in the next few weeks.

You can see the last 2 times RSI was this high, the negative divergence of Nov to Dec didn’t matter. Price bucked what we all thought and went higher.

So you can look at the previous negative divergence and shrug it off. But the RSI now is creeping down towards 62 on the daily. If we can hit 55 to 45 range and keep an elevated price, you get the “confirmation” from some that this is the real deal and people may start to buy.

However, if I were to add at this point to a futures, I might do ONE micro to nibble with a relatively tight stop. It gets me exposure to this price move up, but doesn’t marry me to the position. You look at, “can I miss this move” and may have a form of FOMO. So, trepidation here can be what bears are looking at – lets get some dumb money in, and then rug them.

Miners

My juniors have started to pick up here. My USAU has been screaming, and my only regret was that I wasn’t loading up the boat at $4 on this. I did, a few times, and gold moved against me and I had to sell out. I did, however, load my 14 year old son up with a position at $4 for him for his college fund, so that’s screaming high for him now. Dave Kranzler’s Mining Stock Journal yet again pays for itself many times over.

With this, my FSM has recently caught fire as well, as it FEELS like people are coming back in. This might be one of those 3-4% up days for a month, and if you didn’t take positions along with the way, you’d be left behind. Recently, I had sold my DITM AG and GDX calls for a substantial profit short term (like 15% in 4 days?) and got out before a rugging. Guess what. No rugging yet.

I’m a BIG ratio guy, and you can see how miners are starting to gain traction on gold. I’m using the gold to GDX ratio here as a proxy.

One COULD make the argument here that even if gold cooks sideways for awhile and even comes back to $1920 before another move up, that the miners could make a serious buck or two at $1920. I agree with my colleagues, that the longer this stays over $1900, the more they will believe in this move. To me, it is looking attractive to buy some long dated calls here DITM to maybe hold for a bit. However, let’s actually look at the GDX price.

When you look closely – the green circles – one is gold price at $2088 during July 2020, the next is the Russian move with gold to $2050 or so. You can see with this green circle that GDX had a LONG way to even catch up to here, and is nowhere even in the same zip code as those run ups. Gold miners got destroyed in 2022 due to high inflation, which made the actual metal far outperform the miners.

Today, you can see RSI at 70. I cannot, for the love of God, get in here with any size after I got nuked on my GDX/GDXJ calls I got into during the Russian ferver. I also had NO clue how to “roll options” then and I just had 6 month calls that expired worthless in November 2022. Meaning, I don’t have an appetite here to get in on any size with calls for 6 months or less. However, some long dated, DITM calls might be a happy medium. Another strategy here I’m considering is selling OTM puts, but any kind of underlying market disaster, and I’ll be buying GDX at $25 as it is on its way to $17. Not smart either.

The triangle there that is forming from a top shelf, if you will, shows GDX now pounding a line that is about at a double top. So we could see this come back down to perhaps $26, in which case selling $25 puts might not be terrible. But I don’t like that. Selling OTM puts for a few bucks in a highly volatile environment?

Then, you just saw oil prices go up. Anyone remember how fuel prices crushed gold miner margins in 2021? I do. Had I just bought in to the metal itself in 2021 instead of miners, I would have saved a lot of heartache.

What to do?

At this point, I’m in a lot of cash, and I think I have to sit for a few more days. Whether this breaks up to $2050 or down to $1920 in a few days could be a probability play of 60% higher and 40% lower, if you look at triangle probabilities only. But, this far above 200dma with negative RSI divergence? Probably then renders this to even move lower of a probabilty.

IF the miners scream a bit, I am very much covered with a massive FSM position and a lot of juniors.

I might just take a plunge and add some DITM long dated calls to 2024 or 2025 and ride out any volatility for a few months. If price moves lower on GDX, then add to the position at a much lower RSI. If price moves higher, I might just add shares with a trailing stop to monitor the situation.

That being said – no one, today, can tell you clearly to go long, short, or hold your cash. To me – it’s gambling if you bet on any of the three, with the lowest risk with sitting in cash. Second lowest may be buying shares with tight stops. Next may be LEAPS, but in small quantities. Credit spreads might be interesting, but I am concerned about moving a LOT to trigger the loss – but not enough to cover your backside with the buy back. In that case, perhaps the best idea then is to play an options trade that has a ton of volatility? However – you can see what silver did for weeks a few months ago where it went sideways cooking – in which case the bulls and bears fought every day, so in that case, the options that had price not moving would have been best.

Meaning…..

ANYONE, TODAY, telling you to bet with conviction in either direction for a SHORT TERM move is probably dangerous. I think any of us bulls can see once we get confirmation, or a quick pullback and bounce, that we’d be more optimistic to jump in.

Right now….beware of big money trying to lull you in to positions to then rug you once they have as many in as they can get.