Using GDX because the HUI index does not show the daily chart gaps.
I want to call your attention to three upside gaps and a downside one, as GDX starts to get overbought on the daily chart. As we have noted the corrections will come and in this sector when they come they can feel harsh. But the miners have broken bullish above the SMA 50 and SMA 200 and are still leading in relation to the broad market and in relation to their product, gold.
So a pullback is not yet indicated, but it can come at any time. A couple of personal contacts who track cycles are expecting a near-term pullback (the sector is due, after all). I don’t know stock cycles from bi cycles, but I do want to highlight the following aspects.
- GDX is like a heat seeking missile to the upper gaps shown on the chart. It could fill at least one (or hysterically, maybe each of the lower two) of them before any pullback.
- A Golden Cross of the SMA 50 above the SMA 200 is about to occur and you know what that often means, a bull trap for momo herds and a sharp, if temporary move in the opposite direction (down) from the cross’s bullish implication.
- Such a move could take care of the gap below 29 (refer to the Trade Log entry on Jan. 12 showing this gap unfilled). While we were managing an in-day pullback in that Trade Log entry, this note still applies…
“Investors should be able to take a hit, even down to 28s. Traders obviously would be watching 31.40 or so. A loss of 31.20 would probably load the 29s.”
- GDX held the 31.40 and resumed its rally. I will still consider hedging or maybe even a profit-take here or there, as per previous notes. But that needs to be timed well because for example, Jan. 12 was just an in-day reaction that resolved positively as GDX merely filled the opening gap and then rallied again. Last thing a fundamentally bullish player wants is to mis-time a trade and get left behind.
- The upper gaps (and well beyond, in my opinion) are still the upside objectives, pullback or no pullback. So again, investors should not be getting too stressed out.
- RSI is becoming overbought while volume, still decent though it is, tapers down. That is a recipe for a potential pullback.
- A pullback to the 28-29 range would likely be a solid buying opportunity (or if you’re a ‘both ways’ day trader, short covering opportunity).
- If GDX were to pull back from the current level the 38% Fib retrace lines up with lateral support and the moving average convergence at 28 to 28.50. If it were to rise a bit more and fill the first gap a 50% retrace would still get near that area.
Bottom Line
NFTRH remains firmly bullish in 2023, but subject to corrections, the first of which may take the form of a pullback from the 33-36 range to test the moving averages.
