Last 20 Days - GDX

[DJones]

Pascal - welcome back. In your absence I realized how I have come to look forward to the "Daily Comment," and certainly missed it. And thanks to Billy for his daily summary on the forum - that too has become a staple of my mornings.

Using the RT graph to look at the last 20 days, you can see - at the highest level - a general inflow of PM money and a general decline in GDX price. We've all been watching that divergence, and a couple of weeks ago discussed it here. So far that divergence has not "corrected" - at least not yet.

Even with today's bounce, we have a long way to go before you can say that the GDX price is where we would expect it to be compared to 20 days ago given the PM MF over the last 20 days. I have had success trading such divergences in other ETFs (e.g. currencies, bonds) and waiting for the price to catch up with the MF. Usually it takes just a few days for that to happen.

What's your sense of whether such a relatively long-term divergence ever corrects...or should we just chalk it up to a period of time where PM MF and GDX price did not correlate and ignore that time period and return to making decisions based on purely the time-tested rules.

Thanks.

[Pascal]

Pascal - welcome back. In your absence I realized how I have come to look forward to the "Daily Comment," and certainly missed it. And thanks to Billy for his daily summary on the forum - that too has become a staple of my mornings.

Using the RT graph to look at the last 20 days, you can see - at the highest level - a general inflow of PM money and a general decline in GDX price. We've all been watching that divergence, and a couple of weeks ago discussed it here. So far that divergence has not "corrected" - at least not yet.

Even with today's bounce, we have a long way to go before you can say that the GDX price is where we would expect it to be compared to 20 days ago given the PM MF over the last 20 days. I have had success trading such divergences in other ETFs (e.g. currencies, bonds) and waiting for the price to catch up with the MF. Usually it takes just a few days for that to happen.

What's your sense of whether such a relatively long-term divergence ever corrects...or should we just chalk it up to a period of time where PM MF and GDX price did not correlate and ignore that time period and return to making decisions based on purely the time-tested rules.

Thanks.

Thanks for your comments Djones. It is also important for me to write a daily comment, because it forces me to watch the market and "Conclude". This process takes time, but it is part of the trading day.

Your question regarding GDX is indeed a correct one. We should always ask such questions. Answering these is more difficult.

Since you write a bout "long-term" divergence, I calculated the same PM MF using 100 days and a 20D average on the 100 days. This means that I take a 100 days rolling window to calculate the MF and then in blue is the 20D average of that raw data. When the blue line is above 0, it means that for the past 100 days, large players have been putting money in the PM sector.

You can see in the figure below that we had in the past three periods when money moved into the PM sector. During the first two periods, the PM sector price was trending up. Today, it is trending down. Why is this happening? I do not know! But for sure, we are talking about very big money here that has been in the long side. Is it because of uncertainty in the US treasuries, uncertainties in the US$, in the Euro, in everything combined? We are not talking about you and I entering our orders, but about large players keeping on putting money in the PM sector. Should we follow or not follow them? I am following the MF model signal, which tracks large players. They indeed have more money on the line and also more resources to analyse each stock in the sector.


Pascal

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