There’s nothing to talk about. That’s it. It’s over.
Call the latest moves whatever you want, but don’t call them just another dip – just another buying opportunity before the bull resumes.
This thing is getting buried, and you’ve got a front row center seat. Pictures permitted. Not for the faint of heart.
We’re of course referring to the commodities in general and precious metals in particular, the sector and subsector that have absorbed unimaginable, galactic blows during this latest market selloff. Not that anyone seems to have noticed – or wanted to talk about, so robustly ugly have they been.
Let’s start our analysis with the chart of a company whose very name is synonymous with the commodities, a miner of both base and precious metals with significant energy interests besides, Freeport MacMoRan Inc. (NYSE:FCX). Until a year ago the company had a market capitalization in excess of $40 billion. Today it’s worth but a shadow of that figure – weighing in at a mere $8.35 billion.
This is the epitome of market ugly.
The company’s shares have been in a five year free-fall, nearly congruent with the broader commodity asset class of which they’re a part (and which itself has shrunk by a similar proportion since topping back in 2008). But this last year’s losses have been the most dramatic by far, with FCX tumbling from a perch just under $40 last July to under $8 yesterday.
Ashes to Ashes, Dust to Dust…
Above is the weekly chart of the stock, which has thrice posted oversold sub-20 RSI readings (in blue) and yet, remarkably, has failed to see any meaningful bounce. This is action that gives new meaning to Hobbes’ overture of life as “solitary, poor, nasty, brutish, and short.”
And there’s nothing at this stage that would indicate the pain is over Freeport or for the commodities in general. We therefore recommend very strongly that you consider this company an
As to the precious metals, anyone who thought the equity bust would offer a buying opportunity in gold and silver should give his head a shake – and there are a good many out there who are still salivating over such a prospect – just take a gander at the Kitco website.
It ain’t gonna happen.
Let’s look first at gold, as represented by the SPDR Gold Trust ETF (NYSE:GLD), the world’s most popular vehicle for retail investors interested in owning bullion.
We note several items on the chart, in no particular order –
- First is the moving averages, all of which are unfurled and again descending,
- Next, we note the glaring bearish engulfing pattern (black box, enlarged) that appeared at the top of the move, a reliable Japanese candle pattern
indicative of an immediate trend reversal,
- The spike in volume during the same overheated rise last week, also points to a minor top,
- RSI is now submerging below her waterline (in blue), and
- MACD is just a day away from confirming.
Taken together, this is all but cash in the bank bearish. We’ll know more by day’s end, but it appears gold is about to fold.
Is it possible?!
Don’t take our word for it. Look at gold’s closest trading buddies, silver and the gold and silver miners, as represented by the Market Vectors Gold Miners ETF (NYSE:GDX).
Let’s look first at silver.
This is the iShares Silver Trust ETF (NYSE:SLV) a trusted proxy for the price of the metal.
Whereas GLD had the decency to put on a show of respectability, offering the die-hard gold-mad parliament of buffoons something to chew on, silver makes no
1. Price has now plumbed to a new bear market low (black circle), and
2. Is trending below all the unfurled, down-trending moving averages,
3. Volume readings show no sign of a capitulatory selling frenzy (in blue),
4. And with both RSI and MACD below their waterlines and nowhere near an oversold sub-20 read, we have a full-bore technical ‘sell’ signal for the stock.
We remind our readers that throughout the entire four and a half year precious metal bear market rout, it has been silver and the mine operators who have
led gold lower, and not the opposite.
As for the miners, look, if you dare…
Here, too, we see nothing but carnage, butchery, flesh and bacillae.
We should add that the miners traded at better than $66 a share in the fall of 2011. Today they change hands at a mere thirteen bucks and change. Moreover, the action of the last few weeks has dragged GDX below her former all-time lows set in late 2008. In short, we are in uncharted bear territory for this stock with no way of knowing how low she could go.
The prospects for the precious metals are crappy, to put it in the vernacular. Don’t buy them. Better to sell them if you have them. And if you don’t have them, better to sell them short.
That said, we’re going to attempt a trade today using this down and out group that no one loves save the loveless.
As far as we can discern, the dollar is starting to flex its glutes again after several days of skidding, and it’s also likely that with the Chinese deciding to devaluate, the dollar’s strength will only grow.
That can only be bad news for commodities.
So for all you precious metals Romeos out there, we now offer you a 51st way to leave your lover.
Call her a whiner, miner…
The trade pairs the pullulating dollar (via the PowerShares DB U.S. Dollar Index Bullish Fund – NYSE:UUP) with the withering miners (GDX) in an effort to capitalize on any outperformance by the former.
And it goes like this –
Options Trader Elite recommends you consider the purchase of the UUP December 25 CALL for $0.48 and concurrent sale of the GXD October 14.50 CALL for $0.44. Total debit per pair is $0.04.
Pay attention to those strikes!
With love of the hunt,
Hugh L. O’Haynew, Captain of the Derivative