This Week's Technical SnapShotHave a safe and Happy Memorial Day Weekend to all of our followers.
This 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
Since last week we have had a major recovery rally in the gold stocks. For almost a month now we have said that a test of the 40 level is a possibility. Two weeks ago the GDX successfully tested out the lows of Feb 2010 around the 39 area and bounced straight up ever since. Even though we have rallied, this chart is still pretty ugly. We are expecting some sort of short term top between 46 - 48. We'll explain in more detail on the daily chart below.
GDX Daily Time Frame
After looking the weekly charts, we then want to move on to the lower daily time frame. This week the GDX has broken its downtrend that has been put in place since early March. Another positive is that we got a cross on the TRIX indicator this week. We remain cautiously optimistic that a bottom has been put in place but with this in mind there are still several headwinds that we would like to point out in the chart above.
- the 46 level was support and has now become resistance
- the 50 day EMA will act as resistance
- the neckline from the mega-phone topping formation around 47 will act as resistance
- and then the 48 support level will now act as resistance
We are expecting a major short term top in this zone with a possible correction back down to as low as 42. Any breakdown below 40 and then all bets are off and the gold stocks are going to fall a lot lower.
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. The ratio gave an early indication that the GDX wanted to breakout this week. We have been stating this for over a month to watch this indicator closely. The same resistance levels are shown above that were indicated on our daily chart. We do not expect the GDX to get above 48 on this run without some sort of correction. If a bottom is in place, then the downtrend line should act as support on any correction.
Daily GDXJ/GDX Ratio
Before the month of May, the Juniors were outperforming the Majors, but since then they have fallen off a cliff. There has been no indication that the juniors are ready to recover higher. A couple points:
- the juniors remain below the downtrend
- also remains below major support of around 22
- the ratio on the top part of the chart above still remains well below its moving averages.
All the points above remain very big concerns and point to another reason why we believe the GDX will put in a short term top soon. If we are going to have a sustained move, the moving averages should decisively cross to the upside and the GDXJ is going to have to recover the 22 level. It's something to watch going forward because it should act as major resistance.
The GLD recently broke its sideways triangle pattern and bottomed at the lows of December. The dollar broke out to new yearly highs and continues to put pressure on gold. For now there is clear support in the 150 area on the GLD. Should this area get broken then the GLD could easily hit the low 140's. Until the GLD gets back above 162, we will continue to remain neutral on gold in the short term.
We are still extremely bullish over the longer term on gold. We continue to add add to our physical holdings in this area and should it break down even lower we add even more. Keep Stacking!
Silver remains on a sell signal. Any breakout above 29-31 and we would feel comfortable saying that the bottom is in. Until then, the sideways to down consolidation continues.
US Dollar Index
The USD has been on fire over the last month. Unless something comes out of the ECB here soon to defend the EURO, our target on the USD remains 87-88. We expect a major top around that level. Should the dollar continue to rally, expect more pressure on commodities and gold to fall to lower levels.
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XAU to SPX Ratio
The above chart is the XAU to SPX Ratio. We are getting into an area where we have seen the gold stocks bottom in the past. We use this indicator as a secondary indicator and do not trade off of it. What this indicator basically states is that the gold stocks have been under-performing the general market for quite some time now. This is just another pause in this on going bull market in gold.
NEM - Newmont Mining Corp
Since we first posted this chart Newmont has rallied 7.9%. 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 underway. 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. We expect a rally to at least the 50 level on the RSI.
- Weekly charts still remain on a sell.
- The GDX has major resistance in the 46-48 zone, so expect some sort of correction
- The GLD remains near support, should this area fail then expect a fall into the lower 140's
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
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