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:
Last week we didn't have an opportunity to do our normal weekly report, but we did do a mid-week update where we briefly talked about the problems the GDX was having at the Megaphone neckline resistance zone. In that article, we showed how several equity components of the GDX looked like they wanted to roll over into a correction. That is exactly what we got directly after the FED meeting this week. Where we go from here is still unclear, but a possible retest of the lows from last month is completely possible.
On the weekly chart above, the Gold Stocks remain in an overall downtrend. As you can see on the chart above, the GDX found significant resistance at the neckline of the megaphone topping formation as well as its 20 week ema. Note that the weekly TRIX indicator remains on a sell signal.
GDX Daily Time Frame:
After looking at the weekly charts, we then want to move on to the lower daily time frame. The GDX hit the 48 level twice and bounced right off of it showing that it was a clear resistance level at the neckline. After the FED announcement this past Wednesday, it was very clear that the Gold Stocks wanted to again trade lower. We personally sold off many of our longs and went short by the close. For now we remain very cautious on the gold sector and would only get bullish if we break the 48 level (neckline) impulsively. Note, we did get a MACD cross this week so expect further decline/consolidation going forward. You have to be ready to change on a dime in this market but for now, we would not be adding any gold stock positions until we see something positive develop in the charts.
GDX 60 Minutes Time Frame:
We then want to move from the daily chart down to the 60 minute time frame. For several weeks now, we have expected that the large gap shown above would get filled. That is exactly what happened on Friday of this week. Early next week we would expect the small bounce to continue for several days, but overall we would expect further decline / consolidation to lower levels.
Daily GDXJ / GDX Ratio:
The May/June Junior's rally was absolutely pathetic. There is still no indication that the Juniors are ready to recover higher and lead this sector. In order for us to get bullish on the Juniors, we would want to see price better 22, and the GDXJ/GDX ratio to start trending upwards. For now our attention remains with the majors.
On the weekly chart of the GLD, our comments from several weeks ago still apply:
As many of you already know, the GLD recently broke its multi-year uptrend channel on the weekly chart. It is possible that all it did this week was back kiss its trendline. Should the lower support at "t1" fail, expect a decline down to "t2" and possibly "t3". We have yet to see a positive cross on the weekly MACD and the weekly RSI still remains below its downtrend.
Not much to say on the Daily GLD this week. We would not be overly bullish until the GLD can breakout above that blue resistance trendline. Until then, we remain in a consolidation. Look of the GLD to test out the lows of last month 1 more time. Should a breakdown occur for any reason, then you can expect our "t2" target from the weekly charts to get hit.
Like the Daily GLD, Silver remains in a correction below the blue resistance trendline. Two weeks ago we noted the following:
Short term support is shown by the pink trendline. Any breakdown of this support and 26 at the very least will be retested.
That is exactly what happened this week. Currently, we are testing out the 26 support level. Any failure of this support and the SLV could fall all the way into the lower 20 dollar range. We would love it if silver broke down, as we use the decline to back up the truck on physical silver. The last time we did this was in 2008 when we backed up the truck at 11 dollars. Any breakout over the blue trendline and we would become bullish.
US Dollar Index:
The USD has been on fire over the 1.5 months. 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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- Weekly charts still remain on a sell.
- The GDX showed this week that the 46-48 zone remains resistance. Unless topped, expect further correction lower.
- The GLD remains in a downtrend.
- The SLV remains in a downtrend.
- The USD dollar remains bullish.
Caution is still in order as the summer doldrums are still ahead of us. We would love to see gold and silver both break down and the equities hold up. This sort of positive divergence would give us the confidence that a long term bottom has developed.
Until next week, so please stay tuned.