Two weeks ago, regarding the miners we wrote:
If it (GDXJ) surpasses its 80-week moving average then its next target
is $27-$28. Meanwhile, GDX is holding above previous resistance at $18.
Its next strong resistance targets are $21 and $22.
Earlier today GDX and GDXJ came within pennies of $21 and $29 respectively
while Gold touched $1280 before reversing. While Gold and gold stocks could
continue a bit higher, their rebound may have ended Friday morning.
A weekly candle chart of GDXJ and GDX is below. The miners over the past six
weeks have formed six white candles and taken out their 80-week moving averages,
which contained the strongest rallies during the bear market. However, the
miners formed a nasty reversal on Friday after touching resistance earlier
in the day. The miners could, at the least, test their 80-week moving averages
which are now support.
The recent rebound was similar to that from the October 2008 lows. Then, GDX
rebounded 69% (from low tick to high tick) in five weeks while over the past
six weeks GDX surged 68%. Then, GDX corrected 20%. GDX also corrected 29% during
that rebound. In recent weeks GDX has not corrected more than 10%. It would
not be unreasonable for GDX to correct 20% or even 25% from Friday's high.
Meanwhile, Gold reversed course after reaching a confluence of resistance
which includes the 40-month moving average. There remains a small chance that
Gold could test $1300/oz before correcting. Gold has support at $1240/oz and
$1200/oz.
The bearish reversal at resistance coupled with history makes a strong argument
that gold stocks could correct recent gains in the days and weeks ahead. A
20% decline would be normal and reasonable given the context. For those of
us waiting for a correction, it could be coming. The month of March may provide
the best buying opportunity in the miners since December 2015.
