Gold and the miners have been range-bound since a false breakout in the first quarter, and MoneyShow’s Tom Aspray takes a technical look at their chances of escaping this rut and what you should do if you have holdings in this sector.
In the face of booming stock prices and declining yields, there has been little interest in gold or the gold mining stocks. As I mentioned in April’s Should You Invest in This Unloved Sector? The Philadelphia Gold & Silver Index (XAU) shows a seasonal tendency to form a short-term low in early May.
There are no signs yet that the decline in yields is over, but I do not think this is a new “bond bull market.” The widely followed iShares 20+ year Treasury Bond (TLT) peaked at 113.10 on May 2 and reached initial support at $110.54 on Monday before gapping higher on Wednesday. A move to new highs is a possibility with the monthly projected pivot resistance at $114.63.
This could put even more pressure on the precious metals. As I discussed in yesterday’s review of the Charts in Play portfolio, when one of your portfolio positions does not move as expected, often the best course is to close it out instead of waiting to be stopped out.
A look at the weekly and daily technical outlook for the Market Vectors Gold Miners ETF (GDX), as well of its two largest holdings will reveal why I am changing my view.
Chart Analysis: The weekly chart of the Market Vectors Gold Miners ETF (GDX) shows that we are still well below the downtrend connecting the August 2013 and early-2014 highs, line a.
- Over the past eight weeks, GDX has stayed in a narrow range (boxed area) as it has been unable to close above its 20-week EMA at $24.40.
- The quarterly pivot is at $24.30.
- It would take a weekly close above $25.35 to improve the outlook.
- The recent weekly low is at $23.04 with the monthly projected pivot support at $21.86.
- The weekly starc- band is at $20.97.
- The weekly OBV moved above its WMA in early 2014 and moved strongly above resistance (line b) in early February.
- The OBV shows a short-term pattern of lower lows and is below its flattening WMA.
The daily chart of GDX also shows a pattern of lower highs, line c, and has been below its 20-day EMA for the past four days.
- One can make the case that the action since early April is just a pause in the downtrend.
- The 61.8% retracement support at $23.21 was violated on April 21 with the low at $23.04.
- This now represent further chart support, line d, as stops are likely below this level.
- The daily starc- band is a bit lower at $22.92.
- The daily OBV has tried to move above its declining WMA several times in the past four weeks.
- The OBV is further below its WMA so Aspray’s OBV Trigger (AOT) is firmly in the sell mode.
- The key OBV support (line e) is now being tested and a break to the downside is likely and it could lead prices lower.
NEXT PAGE: 2 Miners to Sell
|pagebreak|Barrick Gold (ABX) is a 13.4% holding in GDX, and it broke to new lows for the year in early May.
- ABX is trading below the 61.8% Fibonacci retracement support and the 20-day EMA at $17.60.
- The monthly projected pivot support for May is at $15.90 with the weekly starc- band at $15.24.
- The daily OBV is still holding above the key support at line c.
- It has been below its declining WMA since the middle of April and has major resistance at line b.
- The weekly OBV (not shown) is well below its WMA but still above the December lows.
- The monthly pivot is at $17.95 with the quarterly pivot at $18.92.
Goldcorp, Inc. (GG) is a 13.2% holding in GDX, and it does look better technically than ABX.
- The daily chart shows a short-term pattern of lower highs (line d) and closed Tuesday on its 20-day EMA.
- GG is still holding above its monthly pivot at $24.51 with the quarterly pivot at $25.07.
- There is minor chart support at $24.20 with the daily starc- band at $23.82.
- There is more important chart support in the $23.16 area, line e.
- The on-balance volume (OBV) is acting stronger than prices as it shows a solid uptrend, line f, from the December lows.
- The OBV is now testing its rising WMA while the weekly (not shown) is just below its WMA.
- There is strong resistance now at $25.76 with the monthly projected pivot resistance at $25.92
What It Means: Though Goldcorp, Inc. (GG) clearly looks more positive than Barrick Gold (ABX), the sideways trading and failure of Market Vectors Gold Miners ETF (GDX) to rally now makes the risk/reward unfavorable on the long side.
The daily OBV Market Vectors Junior Gold Miners (GDXJ) is also negative, and this suggests it will break below the April lows.
Therefore, I would look to close out the light position in GDX and cancel the order to add.
How to Profit: Should be 25% long Market Vectors Gold Miners ETF(GDX) at $23.56. It closed Tuesday at $23.75, and I would sell out long positions on the open and cancel the order to add.