When the bounce began in gold stocks (GDX, HUI, etc.) we used the green shaded zone below as critical support to a continued bounce. GDX held there and bounced to the 50 day moving average, which coincides with the potential Inverted H&S’s neckline. A handy resistance point for sure.
Today GDX is declining back to a test of the support zone and the same rule applies as before; that thing needs to hold or new lows would appear likely. The pattern is actually in symmetry with its left side, if you put any weight on the importance of symmetry. To me it is a very minor consideration, implying that as of now the pattern is intact.
Bottom Line
GDX needs to hold here and not make a lower low on a closing basis or the pattern will have failed and the chances of new lows in the short-term will have increased.
We have only labeled this a ‘bounce’ because the fundamentals have been poor and technically, that is all it is. Trends are down. While the funda would improve if the pressure remains on stock markets and the yield curve were to steepen we have seen before that the sector is fully capable of dropping as its funda improve (ref. Q4 2008).
While still lightly positioned, I will not sponsor this sector if it breaks down and would likely sell recent adds.
