Posts Tagged ‘gold miners etf’
While the market has been trending up for the past week, the pattern that is forming on the major indices appears to be that of a bear flag. To be exact these look more like bear pennants as they are triangulated. Triangles sometimes can be reversal patterns however, so until there is a breakout in either direction caution is the word.
As can be seen by the monthly chart of the SPY, the market has been finding support and resistance at it’s 20 and 50 day EMA’s. Any rally on the S&P will probably not make it past 1341 as that is also the neckline of the head and shoulders pattern. If the market breaks down further, there is a good chance that it will not bottom until it hits it’s 200 day EMA at 1181. In the declines that occured in 2010 and 2011, the market actually dropped slightly below it’s 200 day EMA before recovering.
Gold miners as evidenced by GDX look like they have finally bottomed and there are indications that they have reversed trend and are now heading up. The downtrend from the March top has been solidly broken and buy volume has been extremely strong off the May bottom.
Gold itself does not look too good however. While the double bottom from the December low has been tested twice, GLD is now hitting short term downtrend resistance from it’s May top. If it can manage to get past that line there are 2 more downtrend resistance lines that it must also get through before real progress can be made in the index. If the double bottom does not hold, with the dollar rising and banks dumping hard assets to raise cash, gold can head a lot lower.
The Euro has just broken through the neckline of a head and shoulders pattern that has been forming since September, 2010. With the neckline at 126 and the head at 148 the projected price target is 1.04. With capital fleeing the Eurozone, it appears that the only thing that will at least temporarily reverse a Euro decline is a short covering rally.
Conclusion: With chunks of Europe in a recession and captial fleeing the Eurozone, there’s an excellent chance the U.S. stock market will be dragged down until there are some signs of stability coming out of Europe. Of course another dose of QE will give the markets a lift and take the funk out of gold. Since we are in an election year, in all probability we will see more QE if the market drops too low.
Last week was a roller coaster ride for gold and miners as they both got off to a strong start but then pulled back and finally ended the week on a high note. We now have specific chart patterns and price targets that can be traded for the anticipated rally.
Gold is now trading in a wide uptrend channel and the second point in the bottom trend line has been defined. The 200 day EMA was re-tested and held. I would expect gold to move to the top of the upper channel as it did between January and February. This would give gold a technical target of 1825-1850. The technical target of the inverse head and shoulders pattern outlined in my entry of March 24 is 2,100 so there is a chance gold could break out to new highs in this run.
Gold miners as evidenced by GDX recovered from what looked like a break down below critical support levels. GDX is now trading within a wide sideways trend channel. The target on GDX is 58 or the top of the utrend channel.
Bearish sentiment on gold and miners is now unwinding and should provide fuel for this rally. The fact that oil has broken down from a flag formation is another positive sign as lower oil prices are positive for miners.
Oil has sold off because the U.S. and Europe have stated that they may tap into their strategic oil reserves in an attempt to keep oil prices down. This is a band aid approach that may help in the short term but in the long run it will not have a major effect on the price of oil. Oil is going up in the longer term but it may take a quick drop to it’s 200 day EMA at 98. Then again this could be a false break down and when the news wears off oil will be back in the 105-110 trading range.
I mentioned in my entry of March 24 that TLT bonds were having a counter trend rally and would hit resistance at the 115-116 area. Well TLT didn’t make it that far as it got hammered at 114. Friday’s action formed a bearish outside candlestick that encompassed the prior 3.5 days worth of gains. TLT may find some short term support at it’s 200 day EMA of 111.01 and the March 19th low of just under 110. but this looks like a broken trade. There is longer term uptrend support at about 95 and that is where TLT looks like it is headed.
My guess is that the 30 year bull market in treasury bonds is officially over. One way to play rising interest rates would be to buy TBT. While there can be pricing problems with double inverse ETF’s this particular one has formed a rounding bottom and with interest rates coming off almost 0 it looks like the only direction this ETF can go from here is up.
The dollar has not been exhibiting any great strength lately as many analysts had been anticipating. The Euro has in fact been slowly rising as the perception is that Europe has at least temporarily solved it’s debt crisis while the U.S. has a potentially larger one looming in the future. There are countries like Russia, China, India and Brazil that are actively working to undermine the dollar as the universl currency of exchange.
If a sovereign debt crisis were to hit the U.S. it seems unlikely that the dollar and treasuries would be the main beneficiaries of it as the entire fiscal system of the U.S would be under fire. I would anticipate that gold, silver and other hard commodities would be the primary asset classes that capital would flow into.
Conclusion: It looks like the rally in gold, silver and miners is underway. In any event some gold and silver should be a long term holding in any portfolio.
Gold miners as evidenced by GDX double topped at 58. at the end of February and now appears to have bottomed at a major support level. Negative momentum is waning and while we do not have a completed MACD crossover, the MACD is turning up at a higher level than at the end of December when the index made a higher low. I have found this short term MACD divergence to be extremely reliable in calling turning points in the markets.
There was a breakdown of the rising head and shoulders pattern on GDX and the downside target of approximately 48 has been fulfilled. The minimum upside target of this run should be to the 200 day EMA at the 55-56 area. What happens past that point will depend upon the price action of oil and gold.
One way to play the rally in miners would be to buy Yamana Gold (AUY) either the stock or options. AUY has pulled back to the bottom of it’s well defined uptrend channel. The next move up should take it to the top of the channel at about 18.50.
Rising gold prices are good for miners but rising oil prices are not as they eat into the cost of production. Of course if the price of gold increases faster then the price of oil or the price of oil drops the 2 factors can negate themselves. Right now it appears that the price of both oil and gold are on the rise.
As I mentioned in my entry of February 22 GLD had broken through the neckline of an inverse head and shoulders pattern. That quickly reversed as JP Morgan apparently dumped a huge amount of gold on the open market. Any attempt at manipulation of the precious metals markets is doomed to failure as the laws of supply and demand will eventually win out. Central banks around the world are loading up on gold and China is an especially heavy buyer. China will be opening up it’s own gold exchange in June and the government is encouraging it’s citizens to load up on gold.
As a result of JPM’s actions there is an even larger inverse head and shoulders pattern forming on GLD. We have a left shoulder and head and the right shoulder is now forming off the 50 day EMA support line. If the pattern were to complete a successful break out of the neckline would bring gold to $2,100 per oz. With China opening up a gold exchange combined with the fact that Hong Kong will be opening up a silver exchange it seems highly likely that both gold and siver will be hitting new all time highs this year.
WTIC Oil has also formed an inverse head and shoulders pattern as evidenced by the monthly chart. The neckline has already been broken and the projected price target is 125.
Oil has been flagging since February as evidenced by the daily charts. Once oil breaks through the top of the flag formation it should make a quick run to 125.
As I also mentioned in my entry of February 22 bonds were in the process of breaking down but were taking quite some time to do so. Bonds as evidenced by TLT finally broke through critical support this past week and are now staging a counter trend relief rally. I expect TLT to hit stiff resistance at the downtrend of 116 or it’s 50 day EMA at 115.42. From that point on TLT should head lower and the stock market should continue to rally.
Conclusion: The Technical indicators are pointing to higher stock, oil and precious metals prices while bond prices are headed lower.
The U.S. stock market has broken through the neckline of the inverse head and shoulders pattern that I outlined in my entry of April 21, 2011. It would be nice to see a re-test of the S&P 1340-1350 level as that would give traders confidence that the neckline will hold as support. Since the 1250 level was never re-tested, it’s possible this market may just keep heading higher. Any pull back should be viewed as a buying opportunity.
GLD has broken out to new all time highs. The nice thing about GLD is that there is no overhead resistance as no one has ever paid a higher price for it. GLD has moved into the next upper parallel channel as outlined in the above chart. A move to the top of that channel would bring it to about 153 which is the projected price target of the inverse head and shoulders breakout that I outlined in my entry of April 12, 2011. Any pullback in GLD should be viewed as a buying opportunity.
Gold miners have been lagging the price of gold but are in the process of catching up. One would think that with the price of gold soaring the miners would also be heading straight up. One factor that may be dampening their price action is the fact that oil has also been moving up, as oil is a critical component of ore extraction operations.
In spite of that GDX has formed a bullish cup and handle formation indicating that the gold miners are about to break out to the upside. The projected price target of this formation is about $76. A break of the downtrend line on the handle is a clear-cut buy signal.
Fed Chairman Ben Bernanke spoke today. While he did say that QE2 would end in June, he also said the Fed would continue to reinvest maturing debt. In any event interest rates will continue to stay low and some sort of quantitative easing will remain in place. All this bodes well for the stock market.
I first recommended GDX about 1 year ago on Oct. 10, 2009 when it was trading at $48. per share. It has had numerous ups and downs over the past year but if you held on to it all this time you are now sitting on a 16% gain. Now is the perfect time to significantly add to this position.
GDX is an ETF that tracks the performance of large scale gold miners. Miners have lagged the price of gold as gold has broken out to new highs. Miners are now in the process of catching up as the higher price of gold is being reflected in their share prices.
GDX has just broken through the neckline of a huge inverse head and shoulders pattern that has been forming since Nov., 2007. This is an extremely bullish formation. Furthermore the neckline at $54. has been back tested 3 times since the breakthrough and the last back test resulted in a surge of both price and volume. The projected price target for the stock is the difference from the neckline to the bottom of the head added to the neckline. That works out to be ($54. – $16.80) = ($37.20) + $54. = $91.20.
With GDX trading at $56. per share there is a projected upside move of 62%. You can either buy the ETF itself or leaps and options, depending upon your particular level of risk. A good strategy might be to buy half an interest in the stock itself and the other half interest in leaps.
Here is a 2 year chart of GDX the etf that tracks gold mining stocks. You will notice that it is almost identical to that of SLV as described in the post below. Since the March top of 2008 GDX has been trading in right triangle and rectangular patterns. It has broken through the hypotenuse of the major right triangle price formation and is in an intermediary uptrend channel. Volume has increased substantially on this ETF and momentum is turning positive on the macd at a high level. It looks like GDX is about to break out of its trend channel and eventually move to new highs. The projected price target of $73. is computed by subtracting $16.33 (the Oct. 2008 low) from the price that is equal to the shortest distance to the hypotenuse and then adding the result to that price. I have marked that distance with a line. That calculates to $45.00 – $16.33 = $28.67. $45.00 + $28.67 = $73.67. If this price calculation works out that equates to approximately a 50% return on GDX from it’s current price of $48.29. It took about 1.5 years for this chart pattern to form. I anticipate the move up to be significantly quicker.