Thursday, May 10, 2012

Potential reversal for gold miners

Today’s action in the Market Vectors Gold Miners ETF GDX +2.02%  has the makings of a key upside reversal on relatively high volume. This comes in the aftermath of a 27-month new low and barely any participation in the October 2011-April 2012 bull phase in the S&P 500. 

A major upside reversal (on a close above 42.85) comes after what appears to be a two-leg correction of equidistant magnitude. The first leg was off of the Sept. 2011 high at 66.98 into the Dec. 2011 low at 49.22 (-$17.76). After an intervening rally to the Feb. 2012 high at 57.94, the second leg down was a near-vertical decline to today’s low of 41.10 (-$16.84). 

A combination of technical factors argue strongly for a significant near-term and possibly intermediate-term low. One factor is that the distance of the two corrective legs approximated one another at a target window of 40-41. In addition, the price level of 41.75 represented the exact 50% retracement support plateau of the entire prior up-leg from the October 2008 low at 15.83 to the September 2011 high at 66.98. 

Another factor is that the GDX reversed on major volume off of 41.10 today. 

Finally, my cycle work on the gold miners points to a 150-day (30-week) low in early- to mid-May.
Today’s potential upside reversal satisfies a significant technical signal within the anticipated timeframe for a cycle low, which adds even more meaning to today’s action in the GDX.

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