More Weakness Ahead In Gold Stocks

The gold stocks continue to correct their epic +150% rebound that began in January and ran into the summer. Last week it was the poor relative strength in the miners that hinted the correction had more to go in both time and price. This week, it was the miners failure at a confluence of resistance, even with Gold trading above $1300, that argued for more weakness ahead. While most of the damage has already been done, our work argues for more weakness before a buying opportunity.

In the daily candle chart below, you can see how this week the miners failed at a confluence of resistance. Over the past four trading days the miners tested but failed at their 50-day moving averages. In addition, GDX failed at $26, which was previous support. Meanwhile, GDXJ failed at $43 which was also previous support.

The weekly charts give a cleaner look at the aforementioned failure as well as what should be strong support. Note how GDX tested and failed at $26 and is likely to close the week below weekly resistance at $25. It has downside support at $21-$22. GDXJ tested $43 and will close the week well below that resistance. It has downside support at $33-$35. 

The gold stocks are ripe for further selling given recent price action and their weak relative strength. Nevertheless, the market has almost priced in the Fed rate hike (79% probability as of yesterday) and another round of weakness in the gold stocks would likely lead to a buying opportunity and strong rebound. As we noted last week, this correction could end up like the 2002 correction in terms of price and the 2001 correction in terms of time. Our downside and buy targets are GDX $21-$22 and GDXJ $33-$35.

For professional guidance in riding the bull market in Gold, consider learning more about our premium service including our favorite junior miners which we expect to outperform in 2017. 

Jordan Roy-Byrne, CMT, MFTA

[email protected]