We published a video update a few days ago discussing the short-term outlook
for the precious metals sector which includes the gold miners. With regards
to the miners, we took the view that they could digest recent gains and hold
support or break lower and trade close to the support near summer lows. After
this week and today especially, one scenario is more likely.
We plot the daily candle charts of GDXJ and GDX below. There are numerous
bullish points to make. First, the miners tested and held above support in
each of the past five days. That culminated with a strong intraday reversal
today (Friday). Second, the miners held above their 38% retracements which
indicates they are holding most of their recent gains. Third, the miners will
close today above their late August peaks. Fourth, the miners have held gains
in the face of a very strong US Dollar.
The miners have formed potential cup and handle patterns with the handle depicted
in yellow (above). The potential upside targets are $27-$28 for GDXJ and $20-$21
for GDX. These targets are possible and would become probable should the miners
break above their 200-day moving averages at $17.82 for GDX and $23.52 for
GDXJ.
The next chart is a long-term look that includes the very significant 400-day
moving averages. The aforementioned potential cup and handle targets nearly
equate to the 400-day moving averages which need to be breached before a bull
market can be declared. The 400-day moving average contained GDXJ's peak in
2014 and GDX's peaks in 2014 and 2015.
The miners' holding of support for five consecutive days in the face of a
surging US$ and a lack of strength in metals prices has increased the odds
of the bullish scenario playing out. After enduring a devastating bear market
the miners should be ripe for a recovery at some point. Need we mention that
the gold stocks have been in their worst bear market ever and second longest?
Need we mention that senior miners have been in a bear market for almost five
years while junior miners have been in a bear market for four and a half years?
The near term outlook looks bullish and if that plays out one would have to
think a major long-term turn was at hand.
