Last week we projected 5% to 10% downside in the gold stocks. Well, not to
butter my own bread but GDX and GDXJ both lost 9% on the week. That being
said, I believed that the weakness would be limited and miners could rebound
to new highs in September. While that possibility remains, there is a chance
this correction could go a bit deeper and perhaps last longer.
The weekly candle charts below show that the miners are correcting after failing
to break into a "thin zone" of resistance. GDX has broken below its July
lows and corrected as much as 16%. It has support at $25-$26 and that includes
the Brexit gap. Also, the 38% retracement of its entire rebound is just below
$25. Meanwhile, GDXJ has yet to break its July low in the $43s. It has corrected
as much as 17% but could end up testing $39-$41. The 38% retracement of its
entire rebound is a hair below $39.
Whether the correction lasts longer or evolves into a long consolidation,
precious metals will remain in a bull market. It is hard to argue against
the chart below. We plot Gold, Silver, GDX and GDXJ along with the 400-day
moving average which is an excellent indicator of the primary trend. The
sector sits comfortably above the 400-day moving averages which are sloping
upward for the first time in years.
While we expected this correction, we did not anticipate there would be a
chance for a larger correction. If you believe we are in a new bull market,
as I do, then the path to financial success is buying and holding and buying
weakness. (Our guidance for selling, we'll get to another time). If I were
holding too much cash or missed the epic rebound, I would be taking advantage
of further weakness. Buying 20% to 25% weakness in a bull market (especially
one that is only months old) will likely payoff in the long run.
