Hello All,
I'm sure this has been posted a million times over - actually I know it has... but here it is again anyway.
The GDXJ and GDX and any other ETFs owned by Van Eck are rebalanced 4 times every year. The rebalances happen every quarter on the third Friday. Just go and look back at the volume on these days and you will see big jumps in most of the stocks in these ETFs. The next rebalance is occurring on June the 16th.
Day to day rebalancing all depends on inflows and outflows to the GDXJ itself. Lately the GDXJ has been sold down (following the gold price retrace) and thus there has been a higher proportion of money flowing out. Because of this the ETFs must rebalance and re-align themselves with the price action and hence they also become a net seller on the market. Hence this explains the recent substantial holder notices. Vice versa if gold was sky rocketing then the GDXJ would be getting bought up and hence the fund would have to come into the market and buy more RMS to align itself with the demand - like the substantial holder notice seen back at the 70 cent mark. These ETFs purely act as indices to provide direct exposure to a certain market and hence don't act like other funds which are purely trying to make a profit. Hence usually the GDXJ will be buying at the top and selling at the bottom.
What makes the upcoming rebalance so different? The rules have changed: Now much larger stocks can be added to the GDXJ... it has been rumored that NST and EVN will be added - hence these stocks were bought up on the news. The reason every other stock in the GDXJ has been sold down is because the fund must make room for the mid caps and also must fund these purchases. So everyone has front run this news in expectation of the sell down (which still has not occurred). Couple this with missed guidance and a retrace in the POG -explains where we are now.
So how many shares will be sold down in the rebalance? Who knows how many... im sure someone smarter than me could do a calculation. One thing is for sure: a large quantity of shares will be dumped.
The good thing is that this whole saga has been well advertised months in advance.
Usually a week or so before the actual rebalance the GDXJ will release the exact re-weightings to all there banking buddies. This is so that there will be a high enough liquidity on the day so that the price dosnt get abolished. I remember Alkane resources a while back got deleted from the Rare Earth Fund and there wasn't enough liquidity on the rebalance and hence it got smashed. Great buying opportunity if you were in the know.
The rebalance also occurs in the closing auction. It's quite fascinating watching the volumes sky rocket after the close on these days. I have attempted to trade these days but now have given up. There is always enough forewarning and hence liquidity therefore the price will rarely move much in the auction. Unless of course the stock is a dog and no-one wants it.
I am not too worried about the impending rebalance. It has been very well advertised. It also provides a great opportunity for a big fella to grab a big slice of the cake without pushing the price up. And why wouldn't they - when considering the current evaluation to free cash flow... I have it under 2!!! On that note... I kind of hope it does drop more on the rebalance... because I will be sitting there with a large pile of cash waiting. This quarter will be a cracker now that Water Tank is online (I read $765 ASIC somewhere?! Tasty!!).
Someobody mentioned that the company could use this as a buyback opportunity - yes I know they just raised at 50cents... but it is a cheeky discount when buying back at 39cents.
Anyway that's my thoughts - all learnt via the forums from much smarter ppl than me. I hope it helps ppl get a better understanding
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