With all of the volatility of
the past nine months, few market observers would think the gold equities have
begun a series of higher lows or even a new bull market. However, this action
is typical of this sector. GDX first formed a low in May followed by a double
bottom low in July. From that point, GDX gained 35% in only two months! After
three months and a pullback of 20%, the gold stocks are pushing higher once
again and have a chance at a tremendous 2013.
There are two extremely
important levels for 2013. The first is GDX 48 or HUI 460. The chart below
shows $48 as the most important near-term pivot point. GDX has already made a
series of higher lows but a weekly close above $48 would add stronger
momentum and confirmation to the uptrend. Also note the positive divergences
in the GDX vs. Gold ratio and the RSI indicator.
The weekly chart of GDX
clearly illustrates our second important pivot point for 2013. Assuming, GDX
closes above $48, the next important resistance is $55, the September high.
Moreover, note that $55 was an extremely important level dating back to the
end of 2007. It is obvious that $55 is far more important than the highs near
the mid $60s. If GDX closes above $55, then every chartist will be ready to
jump on the bullish bandwagon. (Note that they have not jumped on on yet.
They have no clue now but will awaken after GDX is up another 20%).
It's also important to note
the prognosis of the weekly RSI. After surging to 65, the RSI corrected to 40
but its curling up once again. A reading of 40 at a bottom (check) is typical
of a bullish trend. Keep an eye on the weekly RSI as a move above 70 would be
the first such move in six years! This market is slowly positioning for a big
move in 2013 and 2014.
We have not been this bullish
since May and August. The technicals look great and sentiment remains very
favorable for longs. Meanwhile, valuations continue to be very favorable. As
we've discussed in the past months, the miners are trading near historical
lows in terms of earnings, cash flow and sales. A breakout in Gold past $1900
would certainly raise the low valuations and at a time when stronger metals
prices would thereby raise earnings. It is a tremendous one-two punch that
could launch this sector in 2013.
The key for traders and
investors is several fold. First, you always need to plan with each trade and
every investment. Decide how much you want to risk and how you will risk it.
Second, in this sector you must employ effective market timing and proper
stock selection. In the past year many stock pickers got killed because they
couldn't pick the right stocks and they didn't cut their losses. If 2013 is a
return to the bull for gold stocks, which I believe it is, then its time to
do your research if you want to beat the sector.
Good Luck!
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