The bear market in the gold miners has been one for the record books but
it is not over yet. Last week we noted that precious metals were on the cusp
of making new lows while the US$ index was very close to another key
breakout. This scenario remains well in play and would certainly affect the
gold mining sector, which over the past two weeks failed to rebound or build
on any strength.
Below is a daily candle chart that shows GDXJ (large juniors) and GDX
(largest miners). Before Friday both markets had essentially traded nowhere
or sideways over the past 10 days. That could be enough time to "work
off" the oversold condition that developed after the miners declined 16%
and 18% over the previous eight days. Friday's sharp decline reduced the
miners chances of testing the 50-day moving average and could be the start of
the next leg lower. Any strength next week could be capped near $19.50 in
GDXJ and $14.00 in GDX. A daily close below $18.00 in GDXJ and $13.00 in GDX
could quickly lead to lower levels.
GDX and GDXJ have formed small hammers on the weekly candle charts but
volume and size (of the reversal) are lacking. The miners appear to be biding
time before an inevitable break to new lows. Unless they can close above the
highs of this week or form a huge reversal next week, the prognosis for the
weeks ahead remains bearish. Finally, note that previous declines lasted nine
to ten weeks. While this decline may not last as long, it could continue for
several more weeks as miners are not yet extremely oversold on a weekly
basis.
The path of least resistance for gold shares (and the rest of the sector)
continues to be lower. The miners, after 10 days of sideways action face an
increased risk of a breakdown to new lows. While the entire sector is
oversold and bounces can happen, note that severe selloffs and steep losses
are born out of already oversold conditions. As Gold bulls we do not want to
be buyers until we see a sector that becomes extremely oversold and is
trading near strong support levels (i.e $970-$1000 Gold) amid extreme bearish
sentiment.
