3/14/12 - 2:00 PM

GDX is down nearly 4% this afternoon, destroying all hope for a flag buy above the low from 3/6/12. The HUI gold bugs index hit a new 18 month low this morning before bouncing back up a little. The only possibility for a buy today would be a dramatic climb that goes above and stays above 51.64 for the final ten minutes of the trading day. This appears unlikely right now.
More likely, the area around 51.64 will now act as resistance if GDX can climb back up near it. It could be stuck in the range between the mid 49s and 51.64 for a few days. An ideal setup would  have GDX wander up and down in that range and form a flag in two or three days, but there could be other problems looming.
The fact that HUI made a new low puts the possibility of a huge waterfall decline back on the table once again. There is a very large megaphone pattern on the daily chart and if it breaks and can't quickly recover, the target for the decline is near 28. This is only speculation at the moment because no break has occurred.

Chart courtesy of StockCharts.com

18 month daily chart of GDX

The red lines denote the boundaries of the megaphone and the blue line is what a megaphone breakdown would likely look like. The one good possibility from this is that after the last such decline in 2008, there were huge profits to be made on the way up.

QQQ

As I thought, QQQ has given a new MACD buy signal today, but it is too far above the trend line to be safe to buy. The best bet is to wait for a test of the trend line before jumping back in. I will definitely wait because, if a waterfall decline does happen in the gold stocks, it is likely to be in conjunction with a top and a big decline in all stocks as well.

Happy trading.