Let's dive right into charts and get started to see where the Gold and Silver Sector stand this week.
GDX Weekly Time Frame:
As predicted, the GDX went right up into the $46-$48 zone and tested out the neckline and the highs of May and June. Technically the Gold Stocks still remain in an overall downtrend because we have not closed above these resistance levels and made a higher high. The gold stocks that I show below, as well as the underlying commodities, are short term overbought at the moment. This does not mean that both cannot launch higher right here and now, but with 5 weeks on the upside I am personally not willing to risk new money at these levels. The gold stocks love to suck people in, only to reverse on a dime. Until the GDX has a weekly close above the $48-$49 level, caution remains the name of the game.
If the GDX closes above $48-$49 in the next week or two it would confirm that a "W-bottom" will be in place.
Stockcharts.com describes a "W-Bottom" as the following:
W-Bottoms were part of Arthur Merrill's work that identified 16 patterns with a basic W shape. Bollinger uses these various W patterns with Bollinger Bands to identify W-Bottoms. A "W-Bottom" forms in a downtrend and involves two reaction lows. In particular, Bollinger looks for W-Bottoms where the second low is lower than the first, but holds above the lower band. There are four steps to confirm a W-Bottom with Bollinger Bands. First, a reaction low forms. This low is usually, but not always, below the lower band. Second, there is a bounce towards the middle band. Third, there is a new price low in the security. This low holds above the lower band. The ability to hold above the lower band on the test shows less weakness on the last decline. Fourth, the pattern is confirmed with a strong move off the second low and a resistance break.
The description above is almost exactly what we currently have in place. The only difference is that we did not get a new price low on the 2nd dip, but we did tag the lower price band and hold above it. If this pattern should play out then a price target would be the highs of early March around $58. With all this in place, I still beleive that the gold stocks want to correct even if its just in the short term.
GDX Daily Time Frame:
After looking at the weekly charts, we now want to move onto the lower daily time frame. As you can see in the chart there are 5 big resistance levels that are screaming that the gold stocks could put in a correction here:
1. The GDX is currently at the neckline resistance from the megaphone top pattern.
2. The GDX is at its previous highs from June.
3. The GDX is at its downtrend line going back over a year.
4. The GDX is at its 200ema.
5. The RSI closed just under 70. In the past this has usually led to at the very least a short term correction.
GDX 60 Minute Time Frame:
Let's now move from the daily chart down to the 60 minute time frame. On the chart above I have drawn 3 support levels, pink, blue and red. With each support failure, the next trendline will be in play. I believe that a test of the red support will happen over the coming weeks. Should the GDX trend higher and close above 48, then these downside targets would become null and void.
We did get some positive action this week in our GDX / GDXJ ratio indicator. When the risk trade is on the juniors will start to lead the majors. This is exactly the action I would like to see continue if the gold stocks are going to gain traction going forward into the end of the year. Also note that the GDXJ is up against overhead resistance at its downtrend as well as horizontal resistance at 22.
What more can I say about this chart? Gold had a very positive week clearing the overhead resistance that it was trapped beneath for the past several months. For now, the RSI (not shown) are at elevated levels and also the US dollar looks like it may want to bounce. A retest of the broken resistance would be very positive action.
Like gold, silver's RSI levels are very elevated. Silver also closed just below its downtrend that goes back for more than a year. A short term correction could be very near.
US Dollar Index:
The USD is currently in a short term correction within an uptrend. Unless the 81.50 level is broken to the downside, this uptrend should continue. As the chart shows above, the US dollar is currently at 2 support levels making the validity of a bottom in this zone.
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Today I wanted to conclude with Platinum. Like its cousins, platinum also had a spectacular week and it is very unsual that it trades under the price of gold. Although shorter term platinum is overbought, I believe that this metal could be on the verge of finally outperforming its yellow cousin. A breakout over this trendline would be bullish.
- Weekly charts still remain on a sell.
- The GDX is currently in a trading range between $40.50 and $48. Short Term cautious. With a close over 48 I would become very bullish.
- The GLD had a very positive week. Short Term overbought but likely to trend higher into the end of the year.
- The SLV had a very positive week. Short Term overbought but likely to trend higher into the end of the year.
- The USD dollar remains bullish for now.
Until next week, so please stay tuned.