Jordan Roy-Byrne, CMT | Jul 12, 2013 07:28AM ET
Obviously, we can’t know if the bottom is in but I’ll repost a chart that is my best argument for why we can expect a big rebound over the coming months. The chart shows all of the worst bear markets in gold stocks. At the top right I’ve annotated the ensuing recoveries. As you can see, D (the HUI from its 2011 top to last Friday’s close) is extremely close to B and C in terms of depth and duration. B and C occurred in a secular bull market and were followed by 606% and 560% gains. D is also close to E which was followed by a 205% gain in seven months. A, the 2008 collapse was followed by a 324% gain in less than three years.
Moving along, the gold stocks have a very strong resistance target that could come into play in Q4 of this year. Market Vectors Gold Miners (GDX ), the large-cap unhedged miners ETF has a confluence of retracement points near $38. Meanwhile, the current 400-day MA is at $43.71 and will likely come down to $38 before the end of the year. Following four major bottoms (1970, 1976, 2000 and 2008), the recovery hit that resistance (400-day MA) in the fourth or fifth month post-bottom. Finally, GDX’s low is at $22 and there is some critical resistance at $30. A very complex head and shoulders pattern could be developing and that would target $38. In the meantime, both the 50-day moving average and lateral resistance are at $27, which is the next key resistance.
To sum things up, we can’t know for sure if Gold has already bottomed or not. If it isn’t look for $1080 to be the final low. Regardless, our gold stock bears chart illustrates that we are on the cusp of a major bottom. It may already be in or it could happen in a few weeks. We don’t know. On the other hand we do know that each passing day and week brings us much closer to a probable big recovery. Those who have the courage to buy any weakness will be handsomely rewarded and history shows us it usually is in short order. I’m sitting on losses and hope the bottom is already in. More important is the fact that the medium term potential far outweighs the risk of a final minor leg down. Moreover, some individual stocks have already bottomed or will confirm their bottoms if there is a minor leg down.
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