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Fundamental and Technical Market Analysis

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CyclePro U.S. Stock Market Outlook

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Welcome to CyclePro - Your web resource for Technical, Esoteric Analysis, and Market Forecast Commentary.


Introduction

The current U.S. stock market appears to be following a similar path as was previously witnessed by U.S. investors in 1929, 1987, 2008, and by investors in the Japan Nikkei in 1990, Hong Kong in 1997, and many others. These were the most famous world stock market "crashes" of the century. We have already witnessed crashes in internet and high-tech industries during 2000 and the "sub-prime" washout in 2008, will this year also be added to this prestigious list for a "Crash" in the United States? Will the global economy crash too?


I would rather be prepared and wrong
than to be unprepared but right!


Current Commentary -- Where Are We Now?


Excel spreadsheet of my current GDXJ Rebalance analysis:
CycleProOutlook_GDXJ_Rebalance.xls


General information about my coverage of the GDXJ Rebalance event is provided below.

Tuesday, June 20, 2017 8PM:

VanEck appears to be back on track with GDXJ as evidenced by the updated spreadsheet data. All components have been filled very close to where they need to be. Of course there are the usual fluctuations that will always be present: stocks with rising prices will appear over-allocated and require some minor selling, and stocks with falling prices appear under-allocated and require some minor buying. But overall GDXJ is looking pretty much where it needs to be.

GDXJ's weightings are guided by the MVIS Junior Mining Index, which is also managed by VanEck. The VanEck management team meets every month, quarter, and semi-annually to review the possibility of adjusting these weightings, adding/removing stocks, and so on. If you want to keep up with these review meeting dates, click this link to the MVIS Periodic Index Reviews website. The MVIS list of component stocks and their official weightings can also be found on the MVIS Global Junior Mining Index Components page.

And finally, the daily updated list of GDXJ components and their actual weightings plus market values can be found at the VanEck Fund Holdings page. Change the ETF ticker name to "GDX" for that component list. One trick to accessing this data, the link I provided downloads a file with the type XLS to your computer, but the data is not an Excel spreadsheet, it is HTML. So after you download the file, rename the file to change the file type from XLS to HTML and then you can open the file and view it.

Tonight's will be the final update in this series, there's not much point in continuing to post. But for me personally, after I created a rather elaborate database & spreadsheet to automatically scour the various websites to download and correlate all of the data into a comprehensive analysis spreadsheet, I will probably continue to make my own private updates periodically, just in case VanEck allows GDXJ to get far enough out of whack that I might be able to take advantage and trade around it.

The whole "GDXJ Bloodbath" narrative was a total hoax... and yes, I fell for it. Because after all, I had been tracking GDX and GDXJ for awhile and the whole premise made enough sense that it might just happen. Basically, all that I ended up doing was selling several positions to raise some cash only to re-deploy back into those and other stocks (most at lower prices anyway) -- I ended up diversifying a little wider, which is something that I had wanted to do for awhile now.

Before I sign off, I want to offer an important observation about rebalancing events such as this: please keep in mind that because all of the former GDXJ stock positions were significantly reduced, and their market prices have also seen some rather significant discounts against their prior highs, does not automatically mean those stocks are likely to return back to their former price levels any time soon. In other words, don't try to "...drive forward by looking out your rearview mirror." Some of that higher price level was a direct benefit from being a component member of GDXJ. Although all of those stocks are still components of GDXJ, their "weight" or impact of change against GDXJ have been very dramatically reduced. Therefore, the "support" that their market prices received from the pre-Rebalanced GDXJ will not be nearly as dramatic as with the post-Rebalanced GDXJ.

As long as gold/silver prices are supported at current levels or rise from here should provide some support to the mining shares. Many of the GDXJ component stocks experienced some very significant price discounts and for many of those stocks, steep discounts are still available. The deepest "lows" have probably already been seen. Of course, if gold/silver begin a significant sell-off, then you should expect the mining shares to likewise fall, even below their "Rebalancing Lows".

Perhaps the best outcome from all of this is that after the front-running and 3rd party selling of these stocks caused their price charts to diverge from the main mining indexes (XAU, HUI, etc.) they should no longer be held back by the "GDXJ Rebalancing" baggage and should resume a much closer correlation to those indexes (like they did much better before all this started.)

Good luck.

Monday, June 19, 2017 8PM:

As I speculated last night, the GDXJ Rebalancing has pretty much been completed already. The updated GDXJ Holdings report now shows most of the expected changes have indeed occurred. The CyclePro spreadsheet has been updated to reflect all of the latest details.

However, there are a few remaining issues:

Osisko Mining has apparently not been bought yet. Not to be confused, there are (2) Osisko's: Osisko Gold Royalties and Osisko Mining. The later of the two still shows 0 shares -- the expected holdings should be 9M shares, so these still need to be bought.

Also, VanEck seemed to have done a fairly decent job getting close to their target holdings, but for many of the stocks VanEck is not quite done yet. Keep in mind, because GDXJ is guided by the MVIS Junior Mining index which is weighted by market value, VanEck will never be able to get an exact number of shares. As each stocks price goes up or down which changes its market value, then that changes its holdings weight in GDXJ relative to all of the other stocks. In the spreadsheet you will note that I changed the name of column "G" to read "Remaining Chg Required" which is the same data as before, but now as an on-going tool we can use this spreadsheet to tell when VanEck needs to make significant changes to its holdings for any particular stock. VanEck's initial attempt here left some stocks over-allocated and some under-allocated, which is what this column will identify. For example, the first row "Coeur Mining Inc" shows progress at 93% and Remaining Chg Required is +6.1%, which means VanEck needs to buy 6% more shares -- column "V" estimates +560,494 shares still need to be bought.

Major changes still remaining:

All of the GDX holdings have been sold from GDXJ. However, there are now 36 stocks that are common between GDXJ and GDX.

Summary: apparently VanEck was able to find 3rd parties that were willing and able to purchase the stocks that GDXJ needed to unload and/or buy the new addition stocks, and do it all off-line from the formal stock exchanges. As I said previously, the total of all stock tick volumes did not reveal very much of the trading activity that would otherwise be required to facilitate the entire GDXJ Rebalancing. I don't understand the mechanics of what happened, but apparently VanEck was able to have the exchanges execute a "journal entry" of some kind so Friday's total daily volume included all of the off-line buys & sells. My first thought was that VanEck and the 3rd party would simultaneously execute MOC (Market On Close) orders that would effective transfer the shares to/from GDXJ without adversely affecting each stocks price. But an MOC would have shown up in each stocks price data, which in this case it did not. The final daily volume does indeed show the total volume, including VanEck's transactions, how ever it got there.

I believe a lot of the sold shares must have been executed in the exchanges over a period of time. The deep price discounts that developed appear to reflect far more than just traders front-running VanEck. But on the other hand, I cannot offer an explanation why the "New Addition" stocks did not show any significant rally to support all of the necessary buying.

But... it's all over now. The bulk of the rebalancing has been completed. Now all that remains is for VanEck to clean up the few discrepancies that I listed above. From here on out, GDXJ will require constant adjustment to keep its holdings inline with the MVIS index, but none of that will likely afford another opportunity to trade around, like this one was.

Sunday, June 18, 2017 8PM:

I had a very enlightening email exchange with Bob Moriarty (321Gold website) over the past several days. He had said in a recent interview on the Energy and Gold website that he thought much of the rebalance trading had already occurred. I took exception to that comment -- because of the data that I had already collected did not concur -- so I asked him directly.

As it turns out, I had noticed Friday evening that each of the stocks that are components of GDXJ Rebalance scheme exhibited a much higher than normal trading volume, but only for Friday June 16, 2017. I had calculated that the abnormal additional volume was almost exactly the same as if you took the average daily volume plus the number of shares that we were expecting from the rebalancing.

The table below shows the closing data for Friday June 16, 2017 from Yahoo Finance. Volume is the total reported volume, AvgVol+Rebal is my estimated average daily volume plus the number of expected shares from my spreadsheet. Side-by-side the two values are close, not exact, but close to the reported Friday volume. The Diff column shows the variance, so there may still be a few lingering trades required to totally conclude all of the necessary GDXJ rebalancing.

List of GDXJ stocks traded on US exchanges

Closing data for Friday June 16, 2017 extracted from Yahoo Finance:

SymbolCloseChg%ChgAvgVolVolumeAvgVol+RebalDiff
CDE8.36-0.18-2.11%3.70M14.81M13M1.85M
EGO2.750.083%7.82M50.31M43.4M6.91M
AG7.67-0.1-1.29%4.04M16.83M15.1M1.75M
GFI3.42-0.02-0.58%8.92M54.24M50.9M3.36M
HL5.060.010.2%6.89M31.31M25.3M6.02M
NGD2.94-0.04-1.34%6.81M46.54M41.2M5.33M
PAAS16.250.030.18%2.08M21.14M11.3M9.85M
SBGL4.8-0.04-0.83%5.50M43.31M28.5M14.86M
TAHO8.4-0.01-0.12%3.22M21.81M18.8M3.02M
AUY2.45-0.03-1.21%12.99M76.71M64.8M11.95M
BTG2.720.051.87%5.76M20.76M21.3M-583K
DRD3.16-0.04-1.25%386.66k4.23M4.2M50K
EXK2.910.010.34%2.61M10.21M10.6M-364K
FSM4.71-0.01-0.21%2.07M14.17M13.7M477K
GORO3.73-0.07-1.84%1.01M5.25M4.8M444K
GSV1.920.042.13%1.30M13.63M12.7M891K
GSS0.6401-0.0214-3.24%2.51M28.98M27.6M1.39M
GPL1.1500%1.62M15.01M13.5M1.49M
HMY1.68-0.12-6.67%5.47M29.71M24.3M5.42M
IAG5.05-0.03-0.59%8.11M22.67M23.1M-461K
KLDX3.47-0.03-0.86%1.53M12.97M12.5M508K
MAG12.070.050.42%553.71k4.07M3.9M212K
MUX2.5800%4.12M23.52M19M4.48M
NG4.03-0.03-0.74%2.87M17.12M15.8M1.35M
OR12-0.19-1.56%955.83k9.30M8.3M993K
PVG8.90.121.37%2.13M4.41M4.4M35K
PPP0.3382-0.0048-1.4%1.34M10.82M9.5M1.35M
RIC7.200%610.39k3.74M3.5M244K
SAND3.55-0.08-2.2%2.51M14.81M12.6M2.24M
SA9.7500%827.68k3.01M3.1M-112K
SSRI9.18-0.16-1.71%2.15M18.96M11.1M7.89M

Bob Moriarty told me that he thought much of the buying and selling had been conducted off-line from the formal exchanges, so it is quite possible that the entire rebalancing event may already be over.

I downloaded several of the stock's intra-day tick volume and the sum of all trades does not add up to the total volume displayed. The tick volume total is much closer to the average daily volume. But if Bob is correct, then the off-line GDXJ trades were probably added to Friday's volume through some kind of ledger entry (I don't understand how they would do this, but it makes sense that something like this would be necessary to pull it off.)

I am going to continue to monitor the daily details to confirm his assessment. Because of Friday's volume showing the high numbers, I have to believe that his assessment is correct. Any discrepancy between Friday's higher volume and what I show in my spreadsheet could mean that there may be some lingering stocks that are not yet complete.

But I have to say, that if Bob is correct, then the only "opportunity" remaining from this rebalance event is that there are likely to be many traders out there who don't know this yet and have waited patiently on the sidelines to buy into an anticipated "bloodbath" beginning this week. Once they find they have been duped they are likely to deploy that sidelined cash back into these same stocks. So if there is to be any remaining opportunity it is probably to buy into these stocks before they do.

Sunday, June 18, 2017 6PM:

Of the 18 New Additions, only 3 stocks (Eldorado, Yamana, and Zhaojin) have started buying with completion progress by number of shares of 10.7%, 13.2% and 18.0%, respectively.

As of Friday, only 8 stocks slated to be sold have not yet had any activity. Of the 18 stocks slated to be bought, 15 have not yet had any activity. I am guessing they have started selling early because there needs to be a slight time delay for formal cash settlement of the sold shares before they can legally re-use those funds with which to purchase new shares.

General Information regarding my coverage of GDXJ Rebalancing:

VanEck is updating their GDXJ holdings each evening. Unfortunately, they are not necessarily providing actual data on the same date that trading activity takes place. For example, initial rebalance selling began on Wednesday June 14, 2017, but they did not report these trades until Thursday evening. Going forward we should probably expect they will continue providing holdings details with a slight delay. This probably will not be too much of a drag on timing since they probably will not perform much more than 10% moves each day, at least that has pretty much been the extent of their trading activity so far. I have to admit however, that I dunno if their activity so far is merely to test the water, to see how much impact their activity will have on individual stock prices, or whether they will step up and begin buying/selling far more than 10% per day.

The completion status by weight will vary slightly from the completion status by number of shares because the by-weight status includes how each transaction affects the stocks weight relative to the entire GDXJ portfolio as changes may also be applied to the other GDXJ stocks. This is why some of the stocks that have not had any rebalance activity yet may show a negative completion status, ie: if the price of these stocks have gone up since 6/9/2017, then they are in effect, moving counter to the original rebalancing target. In these cases, VanEck will either have to sell more shares than originally anticipated, or they will have to hope the stock price falls so they will be able to sell fewer shares. For example, if a stock had been originally slated to sell 1/2 of its shares but since 6/9 the price drops by 50% while at the same time the other GDXJ stocks maintain their price levels, then VanEck may not have to make any trades at all for this stock because the market value of those shares will automatically fall into line with their rebalance target, which is determined by its weight relative to the value of the entire GDXJ portfolio.

The actual number of shares to be bought/sold will always be a shifting target because the entire rebalancing scheme is based upon a weighted index, which is heavily dependent upon the stocks market price. A higher stock price raises the stocks prominence in the index, which is good for New Additions stocks but counter productive for those stocks that need to be sold. This is why if you view the spreadsheet one day and it says the expected number of shares to be sold is 9.1M and the next day it says 9.2M, it is probably caused by the stock price rising, which essentially requires more shares to be sold.

To keep updated on daily progress of each stock, the spreadsheet contains two relevant columns: one to show the completion status by-weight and another column shows completion status by number of shares. In both cases, when the GDXJ Rebalancing effort is complete, all columnar values should theoretically show 100%. However, because individual day-to-day stock price changes can cause each stocks weight in the entire index to shift, in actuality, the columns will never get to exactly 100%.


Saturday, June 17, 2017 PM:

I had stepped away from regular updates to CyclePro Outlook for just over 6 years because of the dual impact of (1) just being burnt out and (2) an increase in travel requirements for my day job that occupied too much time. To do CyclePro Outlook justice, I needed to spend a minimum of 4 hours per day doing the necessary research, creating charts and other graphics, and of course writing the commentary. Over time, this wears on you, especially when CyclePro Outlook is a free web blog. I always treated CyclePro Outlook as nothing more than an open diary of the things that I was personally monitoring for my own trading activities -- providing it here simply forced me to develop and articulate my theories and analysis sufficiently so I had to fully understand them.

I currently have no plans to resume any of the former depth of analysis that I used to provide herein, but I am going to begin posting some comments temporarily due to the current GDXJ Rebalancing event. So at least for the next couple of weeks, I will be posting fairly regular and up-to-date information for the people that I notified of this data. If you are reading this and are not on my distribution list, then please feel free to read it at your own risk since you will only have access to a portion of all of the details that my distribution readers will have. Please do not email me from this web page as I am not actively monitoring the CyclePro Outlook inbox -- the folks on my distribution list already know how to contact me.

To view the former CyclePro Outlook commentary, please click here.