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Another Important Decision Point for the Gold Sector

By Jeff Clark
Wednesday, September 25, 2013

It's last week all over again...
 
The gold sector was at an important decision point last week. The Market Vectors Gold Miners Fund (GDX) was sitting right on support. A bounce higher would likely kick off the start of a new intermediate-term rally for the gold sector. A break below support would cause a retest of the June lows.
 
One way or another, gold stocks were set up for a big move. And the Federal Open Market Committee (FOMC) meeting was the catalyst.
 
GDX exploded higher last Wednesday after the Fed announced it would continue its quantitative easing program. The decision to keep throwing $85 billion worth of freshly printed bills into the financial markets every month was enough to boost the gold sector by 9%.
 
GDX bounced solidly off support. It closed back above its 50-day moving average (DMA). And the pattern remained consistent with the action we saw as gold stocks bottomed in 2008.
 
All the sector had to do to confirm its new uptrend was to avoid giving back too large a chunk of those gains over the next few days. We could then pile into the gold sector aggressively, with complete confidence that the intermediate-term rally we've been looking for over the past few weeks was finally underway.
 
But gold stocks never make it that easy.
 
By the close of trading on Monday, GDX had given back all of last Wednesday's gains... and then some. So we're back to the same conditions we had just before the FOMC announcement last week.
 
GDX is sitting on an important support level. It either bounces from here, rallies back above the 50-DMA, and kicks off a strong rally similar to what happened in late 2008... or it breaks below the recent low around $25 and heads back down to retest the June low at about $22.
 
Here's the updated chart...
 
 
It's decision time for gold stocks. GDX either holds support right here and bounces, or it fails. Either way, the move is going to happen within the next few days.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

While gold stocks could move lower in the short term, Matt Badiali and Steve Sjuggerud think the sector is set for a longer-term recovery:
 
Why Gold Stocks Could Easily Rally 100% This Year
"If gold holds steady... or rises just a little, gold stocks could stage a big 'catch up' rebound…"
 
A Low-Risk, High-Reward Gold Trade Right Now
"Gold is more hated right now than it's been in years... and I love it. We have the perfect setup for a great trade..."

In The Daily Crux
Market Notes
Online brokerage firm E*Trade soars 87% so far this year.
 
Spain quietly shifts into an uptrend... country fund EWP surges 26% in three months.
 
Bakken Shale player Continental Resources breaks out to a new all-time high.
 
Brazilian stocks break out of their long downtrend... stock fund EWZ surges to a three-month high.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1697.42 -0.3% +16.5%
Oil (USO) 37.22 -0.1% +9.2%
Gold (GLD) 127.66 +0.1% -25.4%
Silver (SLV) 20.89 +0.5% -36.6%
U.S. Dollar 80.59 +0.2% +1.3%
Euro 1.35 +0.1% +4.4%
Volatility (^VIX) 14.08 -1.6% -0.5%
Gold Stocks (^HUI) 229.52 +0.0% -54.9%
10-Year Yield 2.65 -2.2% +54.1%

World ETFs
Symbol Price
Change
52-Wk
Japan (EWJ) 11.95 +0.1% +29.9%
Israel (ISL) 15.54 +0.5% +29.6%
USA (SPY) 169.53 -0.2% +18.9%
China (FXI) 38.11 -1.4% +13.2%
Taiwan (EWT) 14.25 +0.0% +7.2%
S. Korea (EWY) 62.42 -0.1% +5.4%
Singapore (EWS) 13.50 -0.5% +2.3%
Canada (EWC) 28.39 +0.0% +0.4%
S. Africa (EZA) 64.79 -0.8% -1.1%
Russia (TRF) 14.80 -0.2% -3.4%
India (IFN) 19.07 -0.6% -5.8%
Lat.America (ILF) 39.16 -0.9% -7.2%

Sector ETFs
Symbol Price
Change
52-Wk
Alt. Energy (PBW) 6.05 +0.8% +43.5%
Biotech (PBE) 34.94 +0.4% +43.0%
Defense (PPA) 27.76 +0.7% +41.3%
Media (PBS) 23.11 +0.4% +38.7%
Retail (PMR) 33.83 +0.1% +36.3%
Transportation (IYT) 118.94 +0.1% +36.1%
Industrials (IYJ) 91.37 +0.3% +30.0%
Health Care (IYH) 107.55 -0.5% +28.4%
Consumer Svcs (IYC) 110.12 +0.0% +27.8%
Financials (IYF) 73.72 -0.4% +26.4%
Construction (PKB) 20.36 +0.3% +25.9%
Semis (PSI) 17.46 +1.3% +24.1%
Water (PHO) 24.06 +0.8% +23.3%
Software (PSJ) 33.04 -0.2% +18.3%
Insurance (PIC) 19.01 +0.1% +18.3%
Big Tech (QQQQ) 78.79 -0.1% +14.6%
Basic Mat (IYM) 74.28 -0.1% +10.3%
Telecom (IYZ) 27.52 0.0% +9.6%
Utilities (XLU) 37.96 -0.1% +8.6%
Nanotech (PXN) 6.99 +0.7% +8.2%
Real Estate (IYR) 64.07 -0.7% +2.2%

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