More Trouble for the Gold Miners?

05/20/2015 10:05 am EST

Focus: COMMODITIES

Thomas Aspray

, Professional Trader & Analyst

When it comes to identifying a major low, MoneyShow’s Tom Aspray finds it best to look at the monthly, weekly, and daily charts before establishing a new position, so he reviews these different time frames to see if there’s technical evidence to suggest that this gold mining ETF has bottomed.

It was a sloppy session for the stock market with most of the major averages showing minor losses. The exception was the 0.76% drop in the Dow Transportation Average. The market internals were slightly negative which does allow for a further pullback. There is initial support for the Spyder Trust (SPY) in the $211 area and the futures are flat ahead of the opening.

The one exception to the quiet action was the gold miners as the Market Vectors Gold Miners (GDX) dropped 3.6%. The $36 dollar rally in the June Comex gold futures last week gave the bulls some hope, but a sharply lower close this week could reverse the sentiment. The gold futures are acting better than the miners but both are lower so far this week.

When it comes to identifying a major low in any market, I have found it best to look at the monthly, weekly, and daily charts before establishing a new position. A review of these different time frames will determine whether there is technical evidence to suggest that this gold mining ETF has bottomed.

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Chart Analysis: The monthly chart of the Market Vectors Gold Miners (GDX) gives one a clear picture of the trend of the past five years.

  • The declining 20-month EMA is a significant barrier at $23.96.
  • The long-term downtrend from the 2011 high at $66.98 is now just above $26.
  • Last fall I discussed the bear flag formation in GDX that was completed by the break of support at line b.
  • The rebound in 2015 has just taken prices back to this resistance.
  • The monthly OBV made sharply lower lows (line d) in 2014 before a sharp rally.
  • The OBV rally in September 2014 just tested the declining WMA (see arrow).
  • Though the volume was impressive on the rally from the October lows, the OBV just reached long-term resistance at line c.
  • The OBV is still above its WMA.
  • There is monthly support at $18.46 which was the April low.

The weekly chart of the Market Vectors Gold Miners (GDX) more clearly reveals the recent nine week rally that has just pushed prices above the 20-week EMA.

  • The rally high in January 2015 just took prices back to the 50-61.8% Fibonacci retracement resistance zone from the 2011 highs.
  • This is characteristic of a rebound within a major downtrend.
  • The quarterly pivot support is at $19.58 with the six week low at $19.20.
  • There is stronger weekly support, line e, in the $17.71 area.
  • The weekly starc- band is at $17.08.
  • The weekly OBV is still above its slightly rising WMA.
  • There is more important support at line g.
  • The weekly OBV has longer-term resistance at line f.
  • There is weekly resistance at $21.25 with the weekly starc+ band at $22.67.

Next Page: Watch the Gold Miner Daily Chart

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chart
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The daily chart of the Market Vectors Gold Miners (GDX) goes back to the August 2014 high of $27.63.

  • As I noted on the weekly chart, the January rally exceeded the major 50% resistance and tested the downtrend, line a.
  • The rally last week slightly broke above this downtrend (line a) before prices turned lower.
  • The 61.8% Fibonacci retracement resistance from the January high, line b, was tested.
  • The daily uptrend, line c, is now at $19.64 with the last swing low at $19.28.
  • The longer-term support, line d, is now at $17.64.
  • The rally in January just tested the long-term downtrend in the daily OBV, line a.
  • This resistance was tested again last week and volume did pick up on Tuesday’s decline.
  • The OBV is still holding above its rising WMA.
  • A daily close back above the $21.25 area would be a short-term positive.

What it Means: From the monthly chart of Market Vectors Gold Miners (GDX) it is clear that, so far, the rallies since the 2011 highs have been just rebounds within the long-term downtrend.

There is no compelling evidence that a change has taken place since February (Silver and Gold: Bear Market Rally?) when the technical studies also indicated that the rebound was over. Both the miners and gold subsequently plunged into the mid-March lows.

Therefore, I would not be a buyer until there are some long-term positive signs for the miners.

How to Profit: No new recommendation.

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