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How Far Down Can the Miners Go?

Updated from 9:42 a.m. EDT to reflect the rally in Allied Nevada Gold Corp. shares on Tuesday

NEW YORK ( TheStreet) -- I'm not a big fan of gold and metals. I have written several articles about the bubble I believe metals are in. One article that received many comments is Don't Walk, Run Away From Gold Silver, and while gold bugs generally don't have a keen appreciation for a bearish bias, the facts are relatively clear.

Even with the tepid short-term rise gold experienced as measured by SPDR Gold Trust (GLD), gold not only didn't keep up with the S&P 500 but recorded a negative return from the time my article was published.

To be sure, gold did not travel on its journey to nowhere alone. The iShares Silver ETF (SLV) experienced a slightly more volatile journey, but the current landscape is the same, with silver bulls licking their wounds. What continues to hold gold down isn't a lack of willingness by central banks to keep the printing presses running full speed, it's the price of energy.

I consider energy the most influential commodity and inflation gauge. It's safe to assume that as long as oil and the oil-tracking US Oil ETF (USO) remain under price pressure, gold and silver are without the primary catalyst that drive their prices higher.

It should come as no surprise that gold miners are also lower. What is surprising is how far they have fallen in relation to gold prices. Take Allied Nevada Gold Corporation (ANV), Goldcorp (GG - Get Report) and Newmont Mining (NEM - Get Report) as examples.

The last time Allied Nevada Gold shares traded for less than $12 was back in Feb. 2010. GLD was trading for about 40% less than it is today, near $109 a share. Newmont Mining shares have lost almost half their value since peaking near $70 an ounce near the end of 2011.

(Editor's note: As of 10:30 a.m. EDT Tuesday, Allied Nevada Gold's shares had gained more than 13% for the session and were changing hands at about $13.37.)

Goldcorp didn't experience quite the metamorphic rise, though its stock is arguably more volatile and it still hasn't lost nearly the market cap that Allied had (before Tuesday morning's rally). Allied Nevada Gold caught my attention a few weeks ago when it became oversold based DeMark indicators on the weekly chart.

For options trading, especially selling volatility, I use DeMark indicators extensively. I haven't found any indicator to be 100% right, but I have found Mr. DeMark to be one of the very best market timers I know of.
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