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Monday, June 4, 2012

Gold miners - GDX

I have looked at GLD a few times lately and somebody asked me about the miners so here is a look at the gold mining ETF GDX.  I always start with the monthly chart first.

This looks like a break down from a rounded top.  The move down spent three months below the lower Bollinger band.  The last month started to bounce and has the highest volume shown on this chart.  We have a nice bounce going from a very over sold condition.  Looking back to 2008 we can see GDX crashed along with gold and everything else in the big panic.  I can understand that.  People were selling everything to meet margin calls.  Once the panic was over, GDX did a V bottom like everything else and ended up at new highs. But what is going on here now.  So far GLD has been having a nice orderly correction and has done nothing yet to be long term bearish by any means.  Were it to break down from its current sideways formation that would be a different story.  But there is no indication that is going to happen at this point.  The stock market has been going down lately, but this is much more extreme then the general market.  This could be something fundamental with the gold mining stocks, but without doing any research on that topic I have no idea what it would be.  If that is the case I would not expect a V bottom like before.

Lets take a look at the weekly chart and see what it says.

We can see there was big volume into the low and falling volume on the rally the last two weeks.  That low may have been a bottom, but this pattern suggests the odds favor some more testing of that low down the road.  Lets see what the daily chart looks like.

Price crossed the 50 SMA on Friday on the biggest volume bar of the entire rally.  This could be a short term buying climax and is a high risk pattern to go long on at this point. This is really a tricky pattern to do anything with if you are not already in. 

A long term prognostication is impossible here without understanding the fundamentals behind the big technical break down.  I certainly don't.  I would like to see some retesting of the low before trying to proclaim a long term bottom is in.  Even if GDX is bottoming, that is not the same thing as trending up.
The monthly and weekly charts are clearly in down trends.  There is much work to be done before GDX starts a  new up trend.


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