Tuesday, January 7, 2014
There's another bullish setup happening in the gold sector.
Yes... it pains me to write that as much as it does for you to read it. We've seen several bullish gold-stock setups fizzle out over the past year – including one from last November.
But that doesn't mean we should ignore today's setup. It just means we should be a little more patient and wait for the proper price action before making the trade.
Take a look at this chart of the Market Vectors Gold Miners Fund (GDX) plotted along with its 50-day moving average (DMA)...
The 50-DMA was a solid resistance level for GDX for nearly all of 2013. The only time GDX managed to get above its 50-DMA was in mid-August, after the Federal Open Market Committee surprised everyone by not tapering its quantitative easing program. Even then, the rally was short-lived. GDX dropped back down below its 50-DMA and has hardly attempted to challenge resistance since then.
GDX has been in a low-level consolidation pattern for the past five weeks – bouncing back and forth between support at about $20.50 per share and resistance at about $22.30. That action has given the 50-DMA time to decline toward the resistance line of the consolidating pattern.
If GDX manages to pop above $22.50 per share, it will take out both the resistance line of the pattern and the longer-term resistance of the 50-DMA. This should be enough to kick off at least a short-term rally in the gold sector.
Traders can buy GDX on a move above the 50-DMA and then look to take profits as GDX approaches the next resistance line near $26.50.
Best regards and good trading,
DailyWealth classic: Dan Ferris says that you should always own gold... "Gold is the asset that can't be inflated, yields nothing, and is no one's liability," he said. "It's real wealth, pure wealth... the most enduring wealth in history." Learn more here.
Classic interview: If you've never owned gold, this interview with Doug Casey – one of the world's leading gold experts – is required reading: Why You Should Hold Gold.
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