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Precious Metals and Mining Stocks: Long- and Short-Term Outlook

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Metals and mining stocks have moved higher today based on the euro's rally.

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Today's market session is very volatile, not only in case of euro, dollar, and stock indices, but also in the case of precious metals. The rally in the mining stocks is much less significant than one might expect based on gold's and stocks' rally. Should this be of concern to precious metals investors?

In today's essay, we will provide you with two charts related to mining stock: One focusing on the long term, and one that provides a short-term signal.

Let's begin with the former (chart courtesy of http://stockcharts.com.)

In the Toronto Stock Exchange Venture Index (which is a proxy for the junior miners as so many of them are included in it), we have a significant bearish signal. Prices have moved below the neck level of the bearish head-and-shoulders pattern. The pattern is huge, clear, and completed -- and the implications are very bearish for those holding juniors and for other precious metals investors as well.

We created a downside target level based on the size of the head in this formation and it is close to the 2008 low. It's also much lower (40% or so) than current price levels. There is clearly much room for further declines.

However, not everything is bearish about the mining stock sector. For instance, we have just seen a bullish signal from one of our in-house developed indicators.

The indicator moved above the upper dashed line and this signal has bullish implications. Please note that in April it marked the beginning of a consolidation; in other cases (and in previous cases since the 2008 bottom), it signaled local bottoms.

Consequently, based on the above chart, a rally seems likely. Then again, metals and mining stocks have already moved higher today based on the euro's rally. Consequently, the rally – or at least most of it – that the indicator suggested may already be behind us. Another small move up will not surprise us, either.

Summing up, the outlook for miners remains bearish for the medium term (bullish for the long term) but, a temporary move up is quite likely. At this time, however, this move up is not something that is signaling a change in the trend – based on the negative situation in the TSX Venture Index, it's rather a pullback within the decline.

For the full version of this essay and more, visit Sunshine Profits' website.

Twitter: @SunshineProfits
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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