Gold mining shares have been hit with just about everything imaginable during the past couple of months; lets recap some of the ‘bad news’:

  • US economic data continues to impress with a blowout jobs report last week
  • Large declines in commodities across the board
  • The consensus is that the Fed will begin hiking rates next year as it starts to normalize monetary policy
  • Gold mining companies continue to report a bevy of bad news ranging from construction disruptions to poor drill results to cost overruns
  • Despondent investor sentiment as the losses from the past few years turn a large investor contingent permanently sour on the sector
  • Flash crashes
  •  The gold price fell as low as $1130/oz on November 7th, well below the all-in cost of production for many miners

And the list goes on……

As a market technician, my job is to study price action against a backdrop of market participant sentiment and put it into context. When I look at the chart of GDX I see a lot of constructive signs, particularly when set against the backdrop of the aforementioned market sentiment and ‘fundamental’ developments:

GDX_daily

3 key positive takeaways from the GDX chart:

  • Higher lows in the face of extremely depressed sentiment
  • Extreme volume which is characteristic of a bottoming process
  • Price continues to push up against previous support in the $20.00-$20.50 area, which has now turned into resistance.  Once price breaks out above $20.50 we should see a brisk 10-15% rally

GDX_Ascending_triangle

A breakout from the ascending triangle will target the $23-$24 area