The gold stock sector has been getting the cleaning it needed. Thus far it has been a routine correction. But if GDX is in an A-B-C pattern, it could become a deep (and healthy) cleaning.
With respect to the GDX daily chart…
Positives:
- Above the up-sloped 200 day average.
- Still in breakout mode from the downtrend channel (black dotted) that was the previous major (4 year long) correction.
- RSI still somewhat functional and MACD still triggered up, minor positives.
- The gap at 36.18 could fill and not break the move above the black channel line.
Negatives:
- GDX may have completed a ‘B’ up of an A-B-C correction. If that is the case, the logical point for ‘C’ would be at support in the 32s, as a ‘C’ leg is usually a strong one as the final hangers-on capitulate.
- Volume has been declining, which means that this could be a bear flag.
My gut? If the USD and Gold/Silver ratio continue to rise that throws me over to the short-term bearish side, which means more profit taking (on balance, with loss limiting sales as well), and later setting up to take advantage if the sector really does wash out.
With sector internals like the HUI/Gold and HUI/SPX ratios still bearish and the Gold/RINF positive divergence to HUI being a positive, but not a timer, and with BPGDM at least showing more potential for froth to come out of the sector, I am going to continue err on the side of caution and cash because gains were good from March and a new opportunity to buy lower would be satisfying if we’re ready for it.
If this is all bearish talk for nothing, and I’m getting mentally whipsawed, it won’t be the first time. If so, I’ll gladly adjust and re-bull. I believe that a next bull leg after this correction could be a forceful one. Plenty of time and space to catch it. For now, the sector is obviously still in the first normal correction of its break out of the major correction from 2020 to March of this year. That “normal” correction could be routine, as it has been, or it could get more intense if point ‘C’ is a valid guide.
