GDX: There’s a Bull Wedge in Play!

I’ll not name the source because I have found that being a gold sector curmudgeon, frequently poking the gold “community” in the eye is a thankless and unrewarding vocation.  If you don’t know who the perma-pompoms are by now it’s not my job to out them for you.  But there is the case of an article hot off the presses, appearing at gold-focused websites, claiming that “GDX looks superb” and that “there’s a bull wedge in play” as GDX gaps higher today.

Let’s never mind that this is silly season, a low volume ‘Santa’ phase, and check out the chart on our own.  First off, it’s a stretch to call that a Bull Wedge (one of the items you will recall is among the most over hyped in TA, along with a Bear Wedge, Death/Golden Cross and Andrews Fork).  What GDX is in is an unbroken downtrend.  It is gapping up on light volume and is still below the top of the Wedge that meets the EMA 20 (orange dotted), which resisted previous bounces in December.

gdx

A couple more points here.

  • Typically, a Bull Wedge should decline following a previous uptrend, even if just a small one.  This one follows a small bounce within the downtrend that failed at the 50 day averages.  In other words, this Wedge is a continuation of the downtrend that has been in force since August.  I suppose it could be what EW’s call an Ending Diagonal, but it is not a Bullish Falling Wedge, not until it breaks above the top black line.
  • Besides that, it can surely break the line as we have been expecting a bounce of some sort, but the real battle zone is the area of the declining 50 day averages (blue).  Just above that point exists a nice, parallel downtrend channel (red dotted).

An interim bounce can and is happening.  Play it as you will.  But to call GDX “superb” while supposedly using technical analysis is irresponsible.  Just like it was when the same writer noted its “drop dead gorgeous bull wedge” in 2015…

GDX: “Drop Dead Gorgeous”?

Here is the chart from that post I made in response, showing the “drop dead gorgeous bull wedge” and what happened after the bounce out of it failed.

gdx

The bottom line is that even when these things work out, they are just short-term situations.  A Wedge is under no obligation to change a downtrend even if it does resolve bullishly.  That said, a bounce is in progress and I am also on watch for the sector as a contrarian opportunity in 2017.  But if writers are going to fluff ’em up bullish, they should at least put in some kind of qualifiers to give less experienced investors some perspective.

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