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An Important Update on the Gold-Stock Rally

By Jeff Clark
Tuesday, October 13, 2015

We knew it was going to happen.
 
After selling off hard in late July, we noted that the gold sector looked to be forming the same sort of bottoming pattern it developed last November. The similarities continued into September. Then, a few weeks ago, we got the gold-stock breakout we were looking for.
 
The Market Vectors Gold Miners Fund (GDX) is up around 20% in the past month. And if the sector continues to behave as it did last November and December, then there are more gains ahead.
 
But it won't be a straight shot higher...
 
Take a look at this chart of GDX...
 
 
Two weeks ago, the nine-day exponential moving average (EMA) crossed above the 50-day moving average (DMA). This "bullish cross" ignited the recent rally, just as a similar bullish cross ignited the rally back in January.
 
During that rally, GDX pushed higher, with the nine-day EMA providing support on the way up, until the fund was about 20% above its 50-DMA. The January rally peaked about one month after it started.
 
Today, GDX is already about 20% above its 50-DMA. The stock is overextended to the upside. And the gold sector is vulnerable to a pullback here.
 
But the rally isn't over yet.
 
Notice how the moving average convergence divergence (MACD) momentum indicator crossed above the zero (neutral) line just last week. There's still plenty of room for it to run higher before the indicator hits the sort of overbought extremes we saw in January.
 
There also isn't any negative divergence on the MACD indicator. In short, as GDX has been making higher highs, so has the MACD line. This indicates that the trend is strong and any brief pullback is likely to be followed by another rally to a higher level.
 
The blue arrows on the chart show where I think the current GDX rally is, relative to the January rally. So there's likely more upside ahead.
 
Traders should be prepared for a bit of weakness in GDX shares over the coming days – perhaps back down toward the nine-day EMA as support. So there's nothing wrong with trimming some profits in anticipation of that pullback.
 
But be ready to jump back into the trade once GDX falls to the support level. The gold sector has at least one more solid push higher left in this rally phase.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

Big gold miners have been rallying over the past month. But Brian Weepie says one gold "mining" company has performed well not just over the past month... but over the past four years. "It's a safer, more diversified way to invest in the gold-mining business," he writes. "And if gold prices continue to rise, this company is going to soar..." Get all the details here.
 
Before you invest in natural resources, 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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From The Crux
Market Watch
Symbol Price
Change
52-Wk
S&P 500 2015.39 +0.0% +5.7%
Oil (USO) 15.49 -3.1% -51.9%
Gold (GLD) 111.46 +0.5% -5.2%
Silver (SLV) 15.15 +0.2% -9.0%
U.S. Dollar 94.72 -0.2% +10.3%
Euro 1.14 +1.2% -10.3%
Volatility (^VIX) 16.59 -2.9% -21.9%
Gold Stocks (^HUI) 130.47 -2.2% -31.0%
10-Year Yield 2.09 -0.4% -9.5%

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52-Wk
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Alt. Energy (PBW) 4.64 -1.1% -13.1%