It has been a frustrating year so far for mining stock bulls and bears.
One of those groups is about to be rewarded for its patience. The other is about to suffer some pain.
The VanEck Vectors Gold Miners Fund (GDX) closed yesterday at about the same spot where it started 2017. The fund has been a couple of points higher and a couple of points lower. Mostly, though, all the gold sector has done so far this year is frustrate the most participants possible on both sides of the trade.
Now it looks ready to make a move. And from my perspective, it looks bullish.
Take a look at this updated chart of GDX…
GDX closed yesterday right on the resistance line of its seven-month-long trading range. This would normally be a logical place at which to expect some resistance. But there are a few bullish items of which to take note.
First off, the recent rally attempt – which began in early July – has formed a series of higher highs and higher lows. As long as GDX can hold above last week’s low of $22.20, then the bulls get the benefit of the doubt.
Also, notice how the 9-day exponential moving average (the curvy red line) is trending above the 50-day moving average (the curvy blue line). This is a bullish configuration that often leads to higher prices.
Of course, gold stock bears can argue these conditions existed before – during the rally attempts back in March and May. But there’s something that’s new this time around…
The gold stock Bullish Percent Index (BPGDM) is flashing a buy signal, and it looks ready to accelerate. Here’s the chart…
A buy signal occurs when the BPGDM reaches oversold conditions (below 30) and then turns higher. This happened in early July, just as the current GDX rally attempt got started.
Through this whole time, however, the 9-day EMA on this chart was trending below the 50-day MA – which is a bearish configuration.
So, we had two forces conflicting with each other. That creates a choppy environment – similar to the action in GDX last November and December.
Back then, the BPGDM triggered a buy signal in mid-November. But the gold sector really didn’t start moving higher until the 9-day EMA on the BPGDM chart crossed above the 50-day MA.
Once that happened, GDX busted out to the upside and gained 10% in about one month. Gold stock bulls should be looking for something similar this time around.
Best regards and good trading,
P.S. Do you see the same sort of upside in gold stocks right now? Send me your thoughts – along with any other questions or ideas – right here.
For today, a few pieces of kind feedback from Market Minute readers…
Jeff, thank you for your insights and educational essays in the Market Minute. I find them invaluable. Thank you again for helping folks like me.
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Have a great holiday with your wife. Life is too precious not to be spending time with the ones you love.
Hi Jeff, just want to say thanks for the time that you take to put together the emails on option trading. I have dabbled in option trading over the years – I'm finding myself closer to retirement at which time I will have the time that it takes to be a successful option trader, likely using covered call/put selling and other conservative strategies to enhance/earn a reasonable rate of return on a portfolio of blue-chip stocks.
I found your article about using a portfolio of $100,000 very useful in helping me decide how much of the portfolio should be used to trade options. I may be missing it, but can you provide me with the link that will allow me to subscribe to your option trading report?
As summer draws to an end, I hope you find the time to spend more time with your children before they return to school along with your “demanding” wife!
Jeff’s note: Thanks for your feedback, Donald. My free “Guide to Option Trading” can be found right here.