The trading month doesn't always end on a Friday but when it does we like
to take a look at the monthly charts. Generally, I prefer daily and weekly
charts because they have more data points. However, monthly charts carry more
significance than weekly charts which carry more significance than daily charts.
You get the point. One reason and a good reason we expect the current correction
to continue is the sector monthly charts.
The chart below plots the monthly candle charts of GDX and GDXJ. Earlier this
year the miners exploded above their 20-month moving averages and into a new
bull market. They were trading at three year highs before a bearish reversal
in August that reversed the entire gains from July. September saw a recovery
but failure to hold most of those gains. This tells us that selling pressure
remains present and miners will likely see lower prices in October.
The metals show a similar picture. Markets moved well above their 20-month
moving averages but the August candle engulfed July's candle while September
recovered only to a small degree. That implies lower prices in October. Gold
has support around $1290 while Silver has support near $18. Like the miners,
the metals remain a healthy distance above their rising long-term moving averages.
The monthly charts and in particular the action of the past two months leads
us to believe lower prices in October are more likely than not. The monthly
charts obviously take more time to develop (we have to wait an entire month)
but they are the most significant. Time will tell but we see the potential
for an important low in October. Traders and investors are advised to wait
for lower prices and an oversold condition. We will focus on opportunities
scattered amongst individual companies.
