Waiting for Double Bottom Support in Gold Stocks
Commodities / Gold and Silver Stocks 2019 May 07, 2019 - 07:01 PM GMTBy: Jordan_Roy_Byrne
Several weeks ago we wrote about the downside risk in the gold stocks.
After the various gold stock indices formed distribution-type tops, the subsequent selling has been swift. Miners have plunged through moving averages and short-term breadth indicators quickly reached oversold extremes.
While the gold stocks are oversold, it could be a little while before we can expect a sustained rebound.
We plot GDX below along with the percentage of HUI stocks that closed above the 50-day moving average and 200-day moving average. (The HUI is essentially GDX sans royalty companies).
The breakdown from the rounding top projects down to $19.50 but strong support is unlikely to be found until $17 or the low $18s. Should GDX trade below $19.50 then the percentage of the HUI above the 200-day moving average (currently at 50%) will decrease materially.
GDX & Breadth Indicators
GDXJ, which closed the week at $28.41 has formed a larger distribution top that projects to a measured downside target of $26.50-$27.00. There is a confluence of strong support around $26.00.
Only 33% of GDXJ stocks are trading above the 200-day moving average. GDXJ could be closer to its low than GDX.
GDXJ & Breadth Indicators
If GDX and GDXJ successfully retest their 2018 lows then their performance in relative terms could inform us on the sustainability of that rebound.
Below we plot Gold, GDX and GDXJ all against the stock market. These charts also have a chance to form double bottoms.
Precious Metals vs. Stock Market
The gold stocks have broken down and have more downside potential until testing strong support levels. We don’t want to fight that breakdown until the market tests strong support amid an extreme oversold condition. That could entail GDX and GDXJ testing their 2018 lows with less than 10%-15% of the stocks trading above their 200-day moving average.
Sentiment indicators for Gold and Silver are trending in the right direction but more selling and lower prices are likely needed before those indicators reach extremes.
As far as fundamentals, there could be some potential bullish developments waiting in the background. If these things come to pass then the gold stocks could be in position to rocket higher after forming a double bottom.
The weeks and months ahead could be an opportune, low risk time to position yourself. We are looking for deep values with catalysts and anything we missed in recent months than can be bought at a discount.
To learn what stocks we are buying and have 3x to 5x potential, consider learning more about our premium service.
Good Luck!
Bio: Jordan Roy-Byrne, CMT is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2014 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor. Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.
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