Gold Miners Are Consolidating Nicely

After getting the year started right, Gold miners are digesting their gains in a very healthy way. Coming into the week, the Market Vectors Gold Miners ETF $GDX is up 23% for 2014. The Junior Gold Miners ETF $GDXJ is up 36% this year. We're talking about just a couple of months here folks. Meanwhile, the S&P500 is up a percent or so for the year. Can you say Alpha?

It's funny because coming into 2014 I was reading blog post after blog post hating on the performance of Gold. It's sentiment like this that sparks rallies with these kinds of returns. Remember that.

So going forward, can the gold miners continue this move? I think so. The majority of this year's gains came over the first 5-6 weeks of 2014. Since then, they've been consolidating those gains in a very healthy pattern. Some might call this a flag, some call it a pennant, triangle, etc. Truthfully it doesn't matter what you call it, it's the implications that really matter.

Here is a daily candlestick chart of $GDX. Look how well prices are consolidating:

This has allowed the 200 day moving average to flatten out and allowed the 50-day to catch up as well.

Take a look at the weekly chart. Look at the nice bullish divergence in momentum. When prices made new lows in December, the relative strength index was already putting in a higher low and failed to reach any oversold conditions. This was a very positive development.

Bullish divergences like this combined with that extreme bearish sentiment mentioned before create violent moves like the one we just saw. After the initial run and healthy consolidation, I expect this uptrend to continue.

Here is a closer look at this consolidation where we can take a breakout above the upper end of the range as a signal that the uptrend has resumed. The Junior miners look the same, just with higher beta. Here are the 65-minute timeframes:

So far so good in the Gold Miners space. A breakout from this bull flag would be extremely positive. A gap higher out of this pattern would be even more bullish.

Tags: $GDX $GDXJ $GC_F $GLD