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The gold sector is poised to make a big move.
The VanEck Vectors Gold Miners Fund (GDX) was on the verge of breaking down when we looked at it 10 days ago. But, GDX found support at its 50-day moving average (MA) line. And with the help of last week’s dovish statement from the federal open market committee (FOMC), GDX has bounced all the way back up towards the upper end of its recent trading range.
Here’s the updated chart…
The pattern on this chart has morphed into a consolidating triangle – with a series of higher lows and lower highs. GDX is approaching the apex of the triangle. So, it’s likely to break out of the pattern – one way or the other – sometime this week.
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The height of the triangle – from the low at $21.50 to the high of about $23.50 – measures $2. So, the projected move is $2 from the apex – which is at $22.50.
An upside breakout gives us a target of $24.50 on GDX ($22.50 plus $2). A downside move projects a decline to $20.50 ($22.50 minus $2).
So, like I said, GDX looks ready to make a big move.
The question, of course, is “Which way?”
A consolidating triangle often – though, not always – breaks in the same direction the stock was heading when the triangle formed. Since GDX was rallying in the weeks leading into the triangle, the odds favor GDX breaking out to the upside.
But, I wouldn’t bet too heavily on that outcome. Nothing is guaranteed. And until GDX can rally above its previous high at $22.92, it still has a pattern of lower highs in place.
Traders will probably do best to wait for a clear breakout from this pattern before placing a trade. Then, respect the breakout move – no matter which direction it goes.
Best regards and good trading,
Jeff Clark
Reader Mailbag
In today’s mailbag, a couple of subscribers respond to last Friday’s cautionary Market Minute…
Jeff, I completely agree with your reasoning that now is a time for caution. Your Market Minute comments advising caution have actually helped me profit numerous times this year, many times simply by choosing to NOT take a trade recommended by another advisor, and thereby not losing money by making a high-risk/low-potential-return trade. Other times, I’ve gotten out of positions based on your cautions in the Market Minute or Delta Report.
And, of course, I’ve also made a number of very appreciated, profitable, short-term trades based on your advice. I’m very grateful to have the benefit of your market knowledge, musings – and most importantly – wisdom! Cheers
– Gregory
Based on today’s action, I’d say your 0.77 VIX leading to a pause was spot on. I guess the bears didn’t like that kick in the teeth yesterday. Thanks for the analysis and daily insights. I’m just not sure where this market is going… mostly sitting on the sidelines in cash right now.
– Dan
How are you trading gold? And are you staying cautious… or has this market “kicked you in the teeth”?
And as always, you can send any other trading questions, stories, or suggestions to [email protected].
