What a move in the gold
stocks! The sector has refused to correct for more than a few days at a
time. All weakness has been bought as a wall of worry has been built
and the sector emerges from a historic low that could be on par with
the 1942 low in the stock market. I thought the Federal Reserve
statement or reaction to it (along with the market’s
overbought condition) might cause the sector to correct this week.
Instead, GDX and GDXJ powered higher and have gained roughly 13% for
the week.
The weekly candle chart
(below) shows both GDXJ and GDX are in breakout mode. GDXJ moved beyond
previous resistance at $32-$33 and has upside targets at $43-$45 and
even $50. Meanwhile, GDX has surpassed resistance at $22-$23 and now
has upside to $27-$28 and $30. Furthermore, the 38% retracement of the
entire bear in GDX is at $32. Do note that the miners have gapped
higher in each of the past two days. For the sake of the bulls on the
sideline, I hope to see an immediate pullback in the days ahead.
The gold stocks are already
very overbought and if they continue higher unabated then we will have
to worry about a potential sizable correction. The chart below shows
GDX’s parent index (GDM) along with two oscillators which
plot its distance from its 100-day and 200-day exponential moving
averages. The oscillators show the gold stocks are the second most
overbought they have been in the past 22 years. The most overbought
point was early 2002 when GDM corrected 37% before climbing much
higher.
Before we worry about a
sizeable correction, let me point out some very important data. The
2002 correction began when GDM and HUI rebounded 212% and 311%
respectively from the major low in 2000. Thus far, the two have rallied
100% and 128% respectively.
Furthermore, the gold stocks
are only three months removed from what could be the greatest buying
opportunity of all time in the sector! While this is a sensational
statement, it is rooted in data and facts and not your typical gold bug
doomer porn. In short, there are three major similarities between the
recent bottom in the gold stocks and the 1942 low in the stock market
which arguably proved to be the greatest buying opportunity ever. I
discuss and analyze the similarities in this video.
To conclude, the gold stocks
have emerged from a historic bottom, have more upside but will
eventually correct. How much they correct and when depends on how fast
they reach their upside targets and what specific levels they reach. My
current guess is anywhere from 25% to 35%. Consider
learning more about our premium service including our favorite junior
miners which we expect to outperform in 2016.
Jordan
Roy-Byrne, CMT
Jordan@TheDailyGold.com
