Impulsive rallies can be blow off ending signals when they come after long up trends and amid over valuation. One recent example was the January 2018 manic blow off and interim top in the over valued, over loved S&P 500.
But when it comes in an under valued market (as we have been noting for months now by HUI’s proximity to its sector fundamental measures like gold/CRB & gold/oil) that has been grinding and shaking ’em out it is quite a different story. Even more so when it comes in a sector that has seen its fundamentals take a another leap upward as we have been noting over the last week.
The chart of GDX shows big volume and a launch from a lateral support area and the 200 day moving averages. Sure there are gaps forming, but that is part of a launch and they could be breakaway gaps that are a sign of strength and would change the trend back to up. They don’t need to fill any time soon.
The pullbacks will come and they will be harsh. But if this is a launch, as would be indicated by the fundamentals slamming into gear, it’s a buy/add the pullbacks situation. I’ll be keeping a close watch on the funda because if they remain strong I’ll remain strong. If not, I won’t. Right now they are strong and this launch from support reflects that.
For reference, a similar thing happened in Q1 2016 as the sector launched hard, but by late spring that year we were noting degrading fundamentals and the rally ended not long after. Let’s not see that happen this time and then maybe we can get a real and sustainable move out of this. We’ll track the funda ever so closely moving forward.