Thursday, December 3, 2009


The mining stocks are at an interesting juncture. At yesterdays intraday high they moved to within 3 points of the `08 highs.

Now 10, 20 or 30 years ago buying the breakout would have been a high probability strategy. But the patterns that worked 20 years ago mostly fail nowdays. Why? Because they did work so well in the past. The market eventually discounts anything that works too good.

A few weeks ago I did a post on outdated technical patterns.  Unfortunately many retail traders still trust these old patterns.

Here is what often happens on a break to new highs or new lows.

Often smart money is selling into these breakouts or buying the breakdowns. This is how most major tops and bottoms are made.

Now we are at an interesting junction in the mining stocks. They are on the verge of breaking to new highs. I expect there are a ton of buy stops sitting right above that level as investors await the breakout as a sign that the miners are ready to explode higher.

Do I think the HUI is going to follow the old pattern of breaking to new highs and then just continuing into a runaway move higher? Probably not. It's more likely that we see the familiar pattern emerge of smart money selling into the breakout.

It took gold four attempts before it was able to break above the major $1000 resistance level.

All in all, I doubt buying the initial breakout is going to be a winning strategy. I expect it's going to take at least two attempts for miners to successfully break above this level.