From Jordan Roy-Byrne: The gold stocks continue to correct their epic +150% rebound that began in January and ran into the summer. Last week it was the poor relative strength in the miners that hinted the correction had more to go in both time and price.
This week, it was the miners’ failure at a confluence of resistance, even with Gold trading above $1300, that argued for more weakness ahead. While most of the damage has already been done, our work argues for more weakness before a buying opportunity.
In the daily candle chart below, you can see how this week the miners failed at a confluence of resistance. Over the past four trading days the miners tested but failed at their 50-day moving averages. In addition, GDX failed at $26, which was previous support. Meanwhile, GDXJ failed at $43 which was also previous support.
Daily Candles GDX, GDXJ
The weekly charts give a cleaner look at the aforementioned failure as well as what should be strong support. Note how GDX tested and failed at $26 and is likely to close the week below weekly resistance at $25. It has downside support at $21-$22. GDXJ tested $43 and will close the week well below that resistance. It has downside support at $33-$35.
Weekly Candles GDX, GDXJ
The gold stocks are ripe for further selling given recent price action and their weak relative strength. Nevertheless, the market has almost priced in the Fed rate hike (79% probability as of yesterday) and another round of weakness in the gold stocks would likely lead to a buying opportunity and strong rebound. As we noted last week, this correction could end up like the 2002 correction in terms of price and the 2001 correction in terms of time. Our downside and buy targets are GDX $21-$22 and GDXJ $33-$35.
The Market Vectors Gold Miners ETF (NYSE:GDX), which is the largest fund tracking gold stocks, closed at $25.07 per share on Friday, down $0.23 (-0.91%). Year-to-date, the GDX has gained 82.73%%.
Meanwhile, the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ), which tracks mid- and small-cap mining stocks, closed at $41.58 on Friday, down $0.77 (-1.82%). GDXJ has surged 116.45% since the start of the year, making it one of the very best performing non-leveraged exchange traded funds of 2016.
Investors looking for further options in the gold mining sector should consult our Precious Metals ETFs page, which contains dozens of additional funds focused on gold and silver.
This article is brought to you courtesy of The Daily Gold.