NFTRH Update; GDX, XLE and SPX Status (daily charts updated)

On Tuesday we reviewed the constructive looks of gold stocks (GDX), energy (XLE) and the US stock market (SPX) by daily charts.

In NFTRH 363 we noted that GDX had broken a trend line and was a good bounce candidate, but ‘bounce’ is all we can call it technically.  An update after Monday’s continued upside noted support levels of 14.71 (Sept. high), 14.36 (EMA 50, now 14.46) and 13.91 (SMA 50, now 14).

The updated chart shows that GDX has approached the August high, which would be a key to an ultimate bounce to around 18 and the SMA 200, which also just happens to be the neckline to a bearish pattern that broke down in July putting the sector in ‘hands off’ bearish mode.  This you may recall was the ‘HUI 160’ parameter that targeted the 100 area on HUI, which has been satisfied.

As to the chart, I think the chances are pretty decent that this bounce will resume after a pullback.  MACD just went green and yesterday’s volume, which reversed the sector to slightly negative, was not high compared to recent up volume.  Let’s see what today brings, but for those wanting to play the bounce, the places to buy are around the above-noted support areas.  I would like to see the combination of the EMA 50 and September high hold as support (14.40 to 14.70).  One thing in the rally’s favor is that a series of short-term higher highs and higher lows is in effect.  If GDX pulls back on a 4th leg, it could be a buying opportunity for a run to near 18.

gdx daily chart

Here is a simplified view with Fib retrace levels inserted.  If GDX retraces a normal 50% of the October up leg 14.50, which is around the September high and EMA 50, would be a logical spot to find support.  A 62% pullback is also viable as there resides the SMA 50 and some lateral support.

gdx daily chart, simple

After spending more time than anticipated on GDX, let’s quickly update the others.  Evidently everybody else saw what we saw and man and machine have momo’d XLE after its channel breakout.  This conviction is constructive for a resumed bounce but as noted, I for one do not plan to buy until it pulls back.  In the previous update we noted that around 63 and a gap fill could do the trick.  XLE can pull back that far and still stay above the channel breakout.  I am not saying it will pull back that far, just that it can.  The gap by the way (according to TA theory) does not have to fill any time soon because it could be considered a ‘break away’ gap that changed the short-term trend in pushing above the 50 day averages.

xle daily chart

Finally, old friend the SPX daily chart.  This thing has guided us well since it first dropped out of the Diamond consolidation pattern in August.  The plan was/is a drop to a logical low (we had 1975, SPX had more impulsively bearish ideas to 1867), a sentiment-fueled recovery bounce, a decline to test the low and now here we are, on a maturing leg upward after a successful bounce test amid a sentiment profile that resembled a Tinder Box.

In the previous update we noted that resistance is at the top of the ‘W’ pattern at 1980 to 2000.  SPX ticked 1999 yesterday.

s&p 500 daily chart

I continue to think SPX has a good chance of ultimately getting to 2040, where there is very substantial resistance.  That is because US stock market sentiment got propelled from a slingshot way too far to the bearish side.  However, just lately it looks like the Dumber Money is getting a little too brave, in line with the market’s successful bottom test and recovery bounce.  From AAII, the latest sentiment data for the week ending 10/7/15…

aaii

Considering we have a stock market at a resistance point after blasting upward in sentiment-fueled relief, I think that the stock market as well is set up for a grind at best, but very potentially a corrective reaction as well.

Bottom Line

GDX/Gold Stocks:  The bear market bounce can continue with an ultimate target of the 200 day moving averages (GDX around 18, HUI around 150), but a pullback was inevitable.  With silver down fairly hard in pre-market, a reaction could be indicated.  Preferred support is 14.50 on GDX (around 115 on HUI).  Keep in mind this is a bear market bounce until big upside resistance levels are taken out.  So the sector has no technical imperative to resume its rally because it does not have an intermediate trend at its back.  It only has a short-term one.  Gold players tend to get their hearts wrapped up in it.  Don’t do that.  Be  cold hearted.

XLE/Energy:  Same general theme as the gold stocks.  It’s a bear market rally.  Key support on any pullback would be XLE 63 to 65.  XLE was positive again yesterday and unlike a lot of other items this morning, Crude is green.  So let’s see if/when this will pullback.  Crude oil is a wild card here.

SPX/US Stock Market:  At notable resistance with sentiment that recovered in line with price.  That is a marker that allows for resumed corrective activity.  While I think big downside may be pushed well out in the future (because the August low was tested so well) SPX could enter the grind phase now.  Eventually, it seems that SPX should make its way to 2040, which was the original ‘bounce’ target and has an outside shot at 2120 (‘W’ pattern measurement per the previous update).

Side Note

I have not engaged the energy sector yet and the other two are ‘hedge (as desired) only’ or ‘take profits at resistance’, not straight shorts in my opinion.  With gold stocks, I am holding on to the few positions but protecting them as needed.  With the broad market, I have some positions but am hedging the SPX.  Anything can change in this market, but I have no plans at this moment to commit to any heavy net bearish positions.

I don’t tell others what to do because this is way too complex for any one person’s situation to even have a shot at being representative of a majority of other peoples’ situations.  I try to lay out what is in process to the best of my ability so that you can use the information to the benefit of your individual situation.  This market is far too volatile right now IMO, to try to apply a one-size-fits-all philosophy to it.