GDX and GDXJ

GDX traded higher yesterday and appeared ready to make a flag, but there were three problems.
The first was that it made a pennant not a flag. This leaves open the possibility of a drop from here or a quick rise and then a drop.
The second problem was with HUI. As mentioned in the previous post, HUI never went lower on Thursday like GDX did. This makes the two day pattern on HUI into a bearish flag with the same implications as problem one.
The third problem is with GDXJ. GDXJ is an ETF like GDX, but the stocks that are in it are junior or more speculative gold miners. The stocks that make up GDX are older, established mines. This makes GDXJ even more volatile than GDX. GDXJ made a new low for this move yesterday, closing below the lows from last Wednesday and Thursday.
Here are the charts:

The major support and resistance lines are the same in the chart above as they were in Friday's post.
The last bar appears to have formed a flag, but this was after hours trading and occurred nowhere else.
Note how the blue resistance line repelled it yesterday morning.

The chart for GDXJ is similar, but weaker. See how there was no messing around yesterday as it dropped to new lows for the move. I will still use GDX and HUI for all analysis, but I wanted to show how different charts of essentially the same market can differ and introduce uncertainty.
GDXJ is well traded with strong volume so it is definitely a worthy trading ETF.
Happy Trading.

GDX support and resistance

Where does GDX go from here? There is a lot of open space below with only very old support (older than 22 months).The more recent the support, the better it usually is, but some of the old support comes from years of testing highs or lows and can also be powerful. Since GDX is very over sold, and I want to be an optimist today, I will focus on recent price action and what it can mean for a possible rise. Here is an eighteen day chart:

The upper blue and lower red resistance lines are the top and bottom of the range that GDX was in for three weeks. With all of the buying at the red lines and all the selling at the upper blue line these lines should be quite strong for a while.
The lower blue line is the long term support / resistance line that trading was focused around for those three weeks.
The two red lines were support for those three weeks and now are powerful resistance and here is why. A lot of people bought in that area over those three weeks and are now down by quite a bit after the drop. Many of these people are looking for an exit so, if prices approach their break even point, they will sell, creating downward pressure on prices. At the same time, people who missed the drop will see a rise back up to the red lines as an opportunity to sell short, also pushing prices down.
Incidentally, the avoidance of these psychological pressures to buy or sell is a prime reason for buying at support areas and using tight stops. Without the worry of being down, you can make far more intelligent decisions in your trading.
Yesterday, GDX and HUI both had double bottoms with GDX going slightly lower than the previous day and HUI staying a little above. The new green support line is at the double bottom. The peak between the bottoms is the minor resistance line.
The key to a good buy on GDX would be a flag above support. I'm not too excited about the double bottom because of the measuring implications of this bottom. If the peak between the bottoms is taken out, GDX should go up the same distance above the peak as the bottom is below the peak. Roughly, 47-46 = 1 and 1+47 = 48, so the target is the red resistance line at 48. I don't generally look for quick day trades, but would rather get the bigger trends. I see two ways to get a new trend going. One is a flag above the double bottom, but below the black minor resistance. This could give the power needed to overcome the red resistance lines in one push. The other, more powerful change to watch for would be a strong push back over the red lines followed by a flag down to test those lines. These are what I will be watching for.
Happy trading.

Good news for Goldbugs

GDX and HUI surged up above the bottom of the megaphone pattern today. This puts control back in the bull camp for now. GDX and all gold stocks are very over-sold after a month of heading down, so I'm hoping for a nice bounce here, or better yet, a nice new uptrend. Here is the GDX chart for the past 14 days:

After a very brief and very small drop this morning GDX surged up through the upper red support line (which was resistance until today) and went all the way to the upper channel line before consolidating for the rest of the day. HUI did the same, but actually reached the blue resistance line before falling back and closing below both the channel line and the resistance line. GDX has not tested either of the red support lines yet and either of them would make sense from here. If GDX goes up to the blue resistance line in the morning, and then falls, the upper red line may contain any drop creating a bullish flag. A fall all of the way to the lower line and then a turn up would also be a bullish flag, just not as bullish.
A consolidation right were it is tomorrow with a rise and a close over the blue resistance would be immediately bullish.
A five or six day flag will often form in situations similar to this. It could form below the channel line, likely using the bottom support to hold it up, or it could jump out of the channel and form above the channel line, but possibly dipping down to the upper support line by the end of the flag formation.
As noted on Friday, the MACD crossed the zero line today, lending some technical support to both GDX and HUI.
Happy trading.

Still hanging in there

GDX tested the resistance of the megaphone pattern this morning and then dropped like a rock. This is what happened in 2008 and it looked like a big drop could be happening again, however, it reversed and went back up to test the resistance again at the close. The resistance has not been broken yet, but now there is some support below as well. Here are the charts:

This chart shows all of Friday in one minute increments. You can see the morning drop and the reversal at about 10:30 AM. GDX went back up to test the resistance again and exceeded the morning high for a minute or two. The new high was important because it prevented the afternoon run from being a bearish flag. HUI also exceeded the morning high and actually closed four cents above it, but still below the resistance. A jump over the resistance appears imminent and any run up on Monday will be accompanied by a new MACD buy signal bringing in new money if sustainable support can be established.
On the less optimistic side, GDX and HUI closed again below the resistance and they closed with bearish hanging man candle sticks.

In the last thirteen days GDX has tested the black line fourteen times, first as support, now as resistance. This chart should make it clear how important this area is going forward. There is also some support below created by the low of 48.42 and the new low that occurred Thursday at 48.05. If it drops on Monday instead of jumping the resistance, we could see a turn at the 48.42 area or even the 48.05 if the first support fails.
If it jumps the resistance line it is possible it will not come back down to test it, but it could hang for two days at the highs near 51 before going up again. A nice rise followed by a flag down to the resistance / support line would be a better entry point if that happens instead.
Happy trading.

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.