Gold Miners Gearing Up For Trendline Test

Happy Presidents Day everyone. I’ve been on a little bit of a blog vacation over the last couple of weeks but we’ll be back in full force going forward. Here is my morning post for SFO Magazine this Friday:

 

SFO Daily: Gold Miners Gearing Up For Trendline Test

Friday, February 17, 2012
By J.C. Parets

After nine consecutive days of losses, the gold miners finally had their up day. And this wasn’t just any positive candle either. The Japanese have named this particular type of daily formation, a “bullish engulfing pattern.”

STRONG TECHNICALS

The body of this candle has essentially engulfed the previous four days of trading. The more full days engulfed by just one, the more bullish the set up. Most importantly, yesterday’s action brought the $GDX back above its 50-day moving average.

All of this short term action comes within the context of a much bigger and much more powerful trend that is already in place. The critical highs in $GDX came in early 2008 and again in late 2009 around the low to mid-$50’s. That key resistance was broken in the Fall of 2010 and the new found support has held throughout the past year. These laws of polarity could not be more apparent that in this recent price action.

GOING FORWARD

For the last year or so, the gold miners ETF has been consolidating in about a ten point range. The breakout this past September turned out to be a false one leaving $64 as the most critical level. Since the false breakout, the downtrend line that is in place should be tested again very soon.

As we say and see all the time, “the more times that a level is tested, the higher the likelihood that it breaks through.” In this case, we have witnessed 4 tests of resistance with the fifth setting up this week.

If this breakout above the trendline occurs soon, I would expect another test of that $64 resistance mentioned above. This would be the fourth or fifth test depending whether you are using pencils or crayons to draw your trendlines.

Once again, “the more times a level is tested, the higher the likelihood that it breaks.” In this case, you are looking at about a $10 range coming to an end, so the measured move is about $10, giving the gold miners ETF a target somewhere in the mid-$70.

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Tags: $GDX $GLD $GC_F $GDXJ


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