Miners’ Ground Support Appears to be Failing

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Greetings Slopers,

I see a particular opportunity setting up in the gold mining sector.  I’ll keep this short and sweet.  First, let me draw your attention the US dollar daily chart.

160824 - USD holding channel so far

I know there isn’t an exactly correlation between the USD and Gold, but it does have an affect of varying degrees depending on the market conditions.  In this case, you can see the US dollar dropping for the first few months of 2016 coinciding with a sizeable, relentless rally in the yellow metal.  However, ever since the USD found support and reversed trend in early May, gold has continued to advance, but at a much shallower rate.

The USD rallies have coincided with pullbacks in gold.  My attention is peaked here since the USD has found support again at its lower channel support (at least for now) and I have to acknowledge that the risks have increased for trading metals to the long side right now.  Now take a look at the Gold Miners ETF, GDX.

160824 - GDX potential correction

GDX has had dropping volume spikes since early June and today had the largest spike in 2 months.  I closed a short trade on GDX today at the channel line for a nice return having only held for 1 day. I want to see what happens at this channel line before I go short.  I’ve been learning to take profits or close at reasonable levels rather than waiting for a reversal to “confirm” the trade is over and stop me out.

I’ve given back significant profits at some times this year by waiting too long and this new method helps with my risk control to either take some if not all off and lessen my exposure to profit evaporation.  GDX has now returned to a previous daily pivot low at 27.50ish.  It’s likely that some buying will occur here and may set up a Head & Shoulders pattern.  Either that, or it blows right through tomorrow : P

If it does indeed break the channel line that today’s close rests upon, the next lower support is the lowest channel line on my chart.  The SMA envelopes I have on measure how far price typically deviates from its 100MA.  Turns out the lower envelope coincides with the 200 day MA.  So there’s that, too.  Bottom Line: if GDX breaks the lower channel, it’s probably going $6 lower, imo.

In any case, keep an eye on both these charts and maybe we’ll make some money together.

Cheers.