Today GDX is dropping hard to fill the September 12 gap up at 37.41. It is also smashing into support at 37.30.
This could contain the pullback, but using HUI as an example (NFTRH 835), we noted that the uptrending SMA 200 is a viable pullback level. For GDX that is the area where the black dotted breakout line (full context not visible on this daily chart) will soon meet the uptrending SMA 200 (orange) at around 35.50.
Of note:
- Gold stocks are being ripped away from their positive correlation with broad stocks, as risk-on, including Trump trades, get bid and we are going to live happily ever after (not). But that is the unsurprising market signaling.
- The miners are getting hit with the anti-USD stick, along with some commodities.
- USD is on a big time spike, because America is great again!
- America is not great again, and USD is below the April high of 106.52, which is the break point to extreme caution (barring some sort of strong dollar trade in some equity areas).
- But we should not take USD lightly either. Recall that the view all along is an ongoing bull market that began in 2008. If USD does fail and drop, it would be within that context. That also means it is a candidate to take its next bull market leg up.
- The Gold/Silver ratio is fairly restrained. If it rises hard along with USD we’ll have a negative market liquidity signal, which could conceivably put the herds into a very few areas perceived as “strong dollar” trades, but more likely, tank the broad markets and most indexes.
- It could prove to be not a bad thing at all one day if the correlation (gold stocks to broads) is ending, because a counter-cyclical macro would be fundamentally supportive of the gold mining industry, but a close tie to a vulnerable stock market could work against those fundamentals with respect to gold stock prices. Better to take the hit now, IMO.
- As you can see, GDX is becoming oversold after RSI lost its trend. A deeply oversold low would be a ‘buy’. If GDX hits 35 with RSI below 30 that could be it.
- Be aware that if the correction cuts that deep, it could cut even deeper in a quick whipsaw. This is the gold stock sector, after all. Not for the faint of heart.
- Side note on Silver: it too could conceivably hit the SMA 200, trending up currently at 28.54, which would be a higher low to the September lows.
- Gold bugs are taking flight in full puke mode. It’s tradition.
As suspected, I covered my hedging shorts too soon. Now I am not sure whether I’ll hedge the risk of a test of the SMA 200. I am leaning that way. But we each should manage per our individual situations and risk tolerance. The bigger theme is that a test of the SMA 200 (if the correction pulls back that far) would be healthy, all things being equal. And it could provide the fuel for a hell of a rally later.
