X

Does This Chart Mark a Real Bottom for Gold?

If this chart pattern plays out, we could see a big gold rally in the coming weeks...

About one month ago, the gold sector sold off to what I believe marked an exhaustive low.

After several weeks of declining, the VanEck Vectors Gold Miners Fund (GDX) had dropped to just $17.50 per share. It was trading almost 20% below its 50-day moving average (MA) line – an extreme move, even for the volatile gold sector.

And with the commercial trader net short position dropping to just 2,000 futures contracts (its smallest short position ever), we had a pretty good setup for calling a bottom in the gold stocks.

Gold stocks then put on a blistering rally. GDX gained almost 10% in about one week. But, as is often the case when an oversold sector makes its first bounce off of the bottom, GDX ran into resistance. 

Before we could declare a “real” bottom was in place, GDX would have to come back down and form a higher low on the chart.

That appears to be what happened last week. Take a look at this GDX chart…

The chart now has a higher low in place. That’s bullish, of course, since it supports the idea of the September low marking an important intermediate-term bottom for the sector.

More impressive, though, is this chart now appears to be forming an inverse head and shoulders pattern. This is a reversal pattern that typically plays out as a stock moves from a bear trend to a bull trend. If GDX can close decisively above the neckline of the pattern, and above its 50-day MA (at about $19.30), then we could see a sharp, continued move higher.

In that case, the potential target measures to $20.50 per share over the next two to three weeks. By then, if this move plays out,  the 9-day exponential moving average (EMA) will have likely crossed above the 50-day MA – which shifts the intermediate-term trend to bullish. And then we can start talking about longer-term price targets.

For now, though, I like the potential of this chart pattern to produce a decent rally over the next two weeks or so.

Best regards and good trading,

Jeff Clark

Reader Mailbag

If you’re a Delta Report subscriber, don’t forget… Tomorrow at 1 p.m. ET, Jeff is hosting a live Q&A where he’ll answer all your submitted questions, off-the-cuff and unscripted.

This may be your only chance to ask him whatever you want to know about option trading, his market outlook, and even new features he’s planning for the Delta Report. To submit your questions before tomorrow, click here.

And as always, send in your trading questions, stories, or suggestions right here…