This Week's Technical SnapShotThis week we again look at the technical situation in the Gold Sector. Let's get started and jump right into the charts.
GDX Weekly Time Frame
Plain and simple, this is one ugly chart. Last week we thought there might be a chance we put in a bottom, but the bears were out in full force yet again with the GDX breaking to new yearly lows. At this time we see nothing on the weekly chart that tells us that the bottom has been created. When the turnaround does come, it will be out of the blue and no one will be let in. The gold stocks are so oversold that we could see a 10-15% rally in a single week. The only support we see on the weekly chart is down around 40 dollars.
GDX Daily Time Frame
After looking the weekly charts, we then want to move on to the dailies. Since early March, the GDX had been stuck within a downtrend. The only positive that we can pinpoint at this time, is that the GDX might have finished its ABC price projection on May 4th of this week. A to B = C to D. So by doing the math we get a price projection of $43.62. Technically there are still significant headwinds that the gold stocks face (which we have shown in pink). Until the GDX can rally up and close above 47.11, the downtrend will continue.
GDX 60 Minutes Time Frame
We then want to move from the daily charts down to the 60 minute time frame. Here again, we show the downtrend that the gold stocks have been in since early March. We slightly broke the downtrend, but only to fall to new lows on May 4th. As you can see positive divergences are all over the place, but in order for us to get really excited on the gold stocks we still need to close above the 47.25 and preferably 48.50. This area would mean a close back inside the neckline on the weekly charts as well as short term technical levels. Watch the ratio at the bottom closely. It could give an early indication that the gold stocks have bottomed and wants to rally higher.
Daily GDXJ / GDX Ratio
The Juniors continue to outperform the Majors. Usually, the Juniors will lead the Majors down in a more risk adverse environment. This could be an early indication that a trend reversal is right around the corner. GDXJ is currently on major support zone, so this area needs to hold. This week the ratio broke out from its downtrend and the moving averages are very close to crossing upwards. If we are going to have a sustained move, the moving averages should decisively cross to the upside. It's something to watch this next week.
Gold continues to remains neutral stuck within a sideways consolidation pattern. This next week we would like to see a decisive breakout above 162.50 area in order for us to be bullish. A couple weeks ago we did see a cross on the TRIX.
We are still extremely bullish over the longer term on gold and see no reason why folks shouldn't continue stacking at these prices.
Silver remains on a sell signal. Any breakout above 31-32 and we would feel comfortable saying that the bottom is in. Until then, the sideways to down consolidation continues.
US Dollar Index
This week we had a rally in the dollar off the lower short term support zone. We are still neutral on the dollar but it sure looks like it wants to breakout higher this next week. If so, it most likely will continue to put pressure on commodities.
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SSEC comparison to CRB index
The Shanghai Index looks as though it might be breaking out from a symmetrical triangle. As you can see, the SSEC Index topped out in November of 2010, while commodities continued to rally for another 6 months. Maybe this same pattern will hold true yet again and we can finally see a commodities bottom sometime in June. First, let's see if the SSEC Index can decisively breakout to the upside. This will give us the first indication that commodities might want to bottom.
NEM - Newmont Mining Corp
Each time the RSI was around 30 or lower, Newmont has put on very significant rally's. We believe that some type of turnaround is just around the corner. Even during the bear market from 1996 to 2000, Newmont still rallied 3 times for at least a 36% gain when its weekly RSI hit 30 or lower. At these current prices we like Newmont very much. Plus, you get a 3% dividend that is linked to the price of gold.
Long term the Gold Stocks remain on a sell signal. Although we can continue lower, the short and medium term looks way oversold so we remain neutral. A bounce could happen at any time.
If the GDX can get back above the neckline around $48.50 and close above it on a weekly basis, then a bottom could possibly have been formed.
Dax Pallotta is the owner and proprietor of TheStockFox.com. For more information or to subscribe to our GDX Swing System please visit our website at http://thestockfox.com/automated-systems/gdx-automated-system.html
TheStockFox.com allows FREE ACCESS to our online portfolio with more than 10 years of trading experience in the gold and silver sector. Affordable membership options are available for our automated trading systems with recent gains in excess of 300% in just over 3 years. Join us to "Out Fox the Bull and the Bear"™
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