Sunshine Profits ?|?Oct 09, 2019 05:12PM ET
The entire precious metals sector rallied yesterday, but the upswing was particularly visible in case of silver and (especially) mining stocks. Both: silver, and miners moved to new October highs. Silver's breakout was tiny, but miners rallied relatively significantly and that's the part of the current long trade that's particularly profitable. Of course, these profits are near to nothing compared to what's likely ahead in case of the big short trade that we plan to profit on in the following months, but they add their part to the overall results. Please note that a small long position here also means staying temporarily out of the short position, which brings the likelihood of re-entering them at higher prices.
Let's take a closer look at what happened.
Yesterday's rally in silver was bigger than the one that we saw in gold, but not yet huge. This suggests that the rally might not be over just yet. The final days of the rally are often characterized by huge outperformance of silver and that's not what we saw yesterday. This outperformance is what usually makes people eagerly jump into the market, believing that the white metal is taking off. But it's not a rally bullish signal - it's an ambush after which silver price starts to decline - often in a dramatic manner. Consequently, it seems that we're going to see a day or a few days of higher prices before silver drops once again.
Summing up, the big decline in the precious metals sector appears to be finally underway, but based on gold's invalidation of the breakdown below the head-and-shoulders pattern, a quick rally is more likely to take place in the very near term. Most likely, the rally will be short-lived and it will end this or the next week.
Due to miners' strength, we are moving the profit-take levels for them higher.
Once gold reaches the predefined gold price target, we think it best (from the risk to reward point of view) to take profits off the table in case of the long positions in gold, silver and mining stocks, and open the big short position in them that are in tune with the main trend.
Written By: Sunshine Profits
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