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Here's When We Could See Explosive Gains in Gold Stocks

By Jeff Clark
Tuesday, October 14, 2014

If you've been waiting to get aggressive with gold stocks, you might soon get your chance...
 
Gold stocks have been crushed recently. The benchmark Market Vectors Gold Miners Fund (GDX) has fallen 23% in the past five weeks.
 
In short, the gold sector is violently oversold. And with the U.S. dollar looking like it has topped, we'll likely see a violent rally in gold stocks soon.
 
But it's not time to go "all in" just yet...
 
Take a look at this chart of GDX...
 
 
Today's setup is similar to what we saw in December. GDX suffered a huge decline in November. In early December, the stock was 14% below its 50-day moving average (DMA) – a historically extreme move.
 
GDX rarely strays more than 10% from its 50-DMA before reversing and then coming back toward its 50-DMA. Extreme moves like this often mark significant bottoms. December was the most oversold GDX had been since the gold sector bottomed in 2008.
 
But bottoming out is a process, not a one-day event.
 
After falling 14% below its 50-DMA, GDX bounced hard. But it couldn't hold onto the gains. The fund came back down, retested the low, and consolidated for most of the month before exploding more than 30% higher from January to mid-March.
 
It looks like the same pattern is playing out today.
 
Early last week, GDX dropped 16% below its 50-DMA. It's more oversold than it was last December. It bounced more than 7% off the bottom early last week. But that rally failed – just like the first bounce failed last December.
 
So if the pattern continues, GDX may need to retest the low and consolidate for a few weeks before it's ready to start a new rally phase.
 
I don't see a lot more downside from here for most gold stocks. So those looking to own gold stocks in the long term can consider buying here.
 
But traders looking for an explosive rally – similar to what we saw last January – may need to be patient for a few more weeks before aggressively buying the sector.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

If you're looking to invest in gold stocks, royalty companies are one of the safest, most profitable ways to own precious metals. Not only are they a great way to diversify, but they also pay high dividends. Learn more about royalty investments in this interview with gold-stock expert John Doody: How to Make the Biggest, Safest Returns Possible in Royalty Companies.
 
Before you invest in natural resources like gold, this classic interview with master resource investor Rick Rule is a must-read. In it, he reveals everything you need to know to master the resource market's cyclicality. If you catch one of these big cycles at the wrong time, you can lose a fortune. But if you catch one early, you may never have to work again...

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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1902.55 -0.2% +11.7%
Oil (USO) 32.16 -0.1% -12.5%
Gold (GLD) 118.35 +0.7% -3.5%
Silver (SLV) 16.63 -0.1% -19.0%
U.S. Dollar 85.57 -0.4% +6.4%
Euro 1.27 +0.6% -6.2%
Volatility (^VIX) 20.80 -2.1% +32.3%
Gold Stocks (^HUI) 197.74 +4.6% -6.8%
10-Year Yield 2.29 -0.9% -14.6%

From The Crux
World ETFs
Symbol Price
Change
52-Wk
India (IFN) 26.42 +1.2% +33.9%
USA (SPY) 190.57 +0.0% +14.1%
Israel (ISL) 16.86 -0.7% +6.6%
Canada (EWC) 29.28 +0.4% +4.9%
Taiwan (EWT) 15.08 +1.1% +5.4%
China (FXI) 38.53 +2.2% +2.4%
Singapore (EWS) 13.12 +0.7% -0.3%
S. Africa (EZA) 64.47 +3.2% +0.5%
Lat.America (ILF) 38.78 +4.7% +0.7%
Japan (EWJ) 11.04 +0.2% -6.2%
S. Korea (EWY) 57.56 +1.9% -8.6%
Russia (TRF) 12.05 +0.8% -19.9%

Sector ETFs
Symbol Price
Change
52-Wk
Biotech (PBE) 44.68 +0.5% +31.1%
Health Care (IYH) 131.45 -0.4% +23.4%
Big Tech (QQQ) 94.58 +0.2% +21.1%
Transportation (IYT) 141.14 +0.2% +19.8%
Utilities (XLU) 43.37 +1.0% +18.0%
Semis (PSI) 19.99 +0.2% +15.4%
Real Estate (IYR) 70.88 +0.7% +12.9%
Defense (PPA) 30.82 +0.2% +11.7%
Financials (IYF) 82.21 +0.5% +11.7%
Consumer Svcs (IYC) 120.42 -0.5% +9.8%
Basic Mat (IYM) 79.72 -0.1% +7.9%
Industrials (IYJ) 95.86 +0.2% +6.5%
Insurance (IAK) 45.70 +0.4% +5.9%
Telecom (IYZ) 28.22 +0.1% +2.8%
Software (PSJ) 33.71 +0.1% +2.5%
Media (PBS) 23.52 0.0% +1.1%
Water (PHO) 23.85 +0.4% +0.4%
Retail (PMR) 32.54 -1.6% -2.9%
Construction (PKB) 19.59 +0.2% -4.3%
Alt. Energy (PBW) 5.42 -0.9% -15.7%