A Bit More Downside Potential In Gold Stocks
Jordan Roy-Byrne, CMT | Aug 28, 2016 02:03AM ET
Last week we projected 5% to 10% downside in the gold stocks. Well, not to butter my own bread but GDX (NYSE:GDX) and VanEck Vectors Junior Gold Miners (NYSE:GDXJ) both lost 9% on the week. That being said, I believed that the weakness would be limited and miners could rebound to new highs in September. While that possibility remains, there is a chance this correction could go a bit deeper and perhaps last longer.
The weekly candle charts below show that the miners are correcting after failing to break into a “thin zone” of resistance. GDX has broken below its July lows and corrected as much as 16%. It has support at $25-$26 and that includes the Brexit gap. Also, the 38% retracement of its entire rebound is just below $25. Meanwhile, GDXJ has yet to break its July low in the $43s. It has corrected as much as 17% but could end up testing $39-$41. The 38% retracement of its entire rebound is a hair below $39.
Whether the correction lasts longer or evolves into a long consolidation, precious metals will remain in a bull market. It is hard to argue against the chart below. We plot gold, silver, GDX and GDXJ along with the 400-day moving average which is an excellent indicator of the primary trend. The sector sits comfortably above the 400-day moving averages which are sloping upward for the first time in years.
While we expected this correction, we did not anticipate there would be a chance for a larger correction. If you believe we are in a new bull market, as I do, then the path to financial success is buying and holding and buying weakness. (Our guidance for selling, we’ll get to another time). If I were holding too much cash or missed the epic rebound, I would be taking advantage of further weakness. Buying 20% to 25% weakness in a bull market (especially one that is only months old) will likely payoff in the long run.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.