It took a crashing stock market to do the trick. But, buyers finally stepped into the gold sector yesterday.
Gold blasted higher by $30 per ounce. That was its largest daily gain in over two years. Gold stocks, as represented by the VanEck Vectors Gold Miners Fund (GDX), gained more than 6%.
Now… I’m not at all crowing about being in the gold sector ahead of this move. I’ve been bullish on gold stocks for the past few months – during a horrible decline. So, yesterday’s move merely brushed a few of the cockroaches away from my decaying gold stock portfolio.
But, I did point out the potential for a strong, two-week long rally in the gold sector in a Market Minute essay last week. Back then, the chart of GDX was morphing into a potentially bullish inverse head and shoulders (H&S) pattern. If it played out, that pattern projected a short-term target of $20.50 per share on GDX.
Well… yesterday’s action took a big step towards hitting that target. Here’s the updated chart…
It’s not the most traditional inverse H&S pattern, but yesterday’s action did pop GDX above the neckline at about $19.10. It also pushed GDX above its 50-day moving average line (the blue line). So, the intermediate-term trend has now shifted to bullish.
Neither the MACD nor RSI momentum indicators at the bottom of the chart have stretched into overbought territory yet. So, there’s room for GDX to press even higher towards our $20.50 target before hitting resistance. I suspect GDX will hit that target in the days ahead.
More important, though, is this inverse head and shoulders pattern often reverses the intermediate-term trend for a stock from bearish to bullish. GDX is now trading above its 50-day moving average line. As long as it stays above that line, then we can expect gold stocks to press even higher.
There will be pullbacks in this intermediate-term rally, for sure. But, traders should use any pullbacks towards the 50-day MA as a chance to increase exposure to the gold sector.
Best regards and good trading,
In today’s mailbag, one Delta Report subscriber thanks Jeff for his timely Delta Direct updates…
Thanks Jeff, for your guidance and all of the great updates on the blog over the past few days! I just wanted you to know how much I appreciate it and rely on you every day to become a better trader. Thanks for the chart of GDX today, and like you, I shall say no more!
And another reader has a short and sweet response to yesterday’s Market Minute…
Are you increasing your exposure to gold? Or are you staying away from the sector? And as always, send in any other trading questions, stories, or suggestions right here…
And Delta Report subscribers can access Jeff’s Delta Direct blog, anytime, right here.