Other than during a rally from Thanksgiving until New Year, gold stocks have been under pressure for nearly six months.
The correction itself was not a surprise, but the structure has been different from the corrections during the 2000s.
Those corrections entailed a quick decline and then a recovery of most of the losses, on the way to at least a few more months of consolidation. In 2009-2010, the corrections were especially brief.
The current correction is nearly six months in, and the gold stocks are fairly oversold and trading just above strong support levels.
GDX has a confluence of support at $32, including the 38% retracement from the 2016 low, the 50% retracement from the Covid low, and the 400-day exponential moving average.
Breadth indicators signal a market that is oversold but could register an extreme should GDX test $32.
GDX Daily w/ Breadth Indicators
Meanwhile, the prognosis for GDXJ is similar. It has a confluence of support at $47 and $45.
The 8-year support level and 38% retracement from the Covid low are at $47, while the 38% retracement from the 2016 low and 400-day moving average are at $45. Note, the 400-day moving average has been an excellent pivot point over the past decade.
As with GDX, the breadth indicators are oversold but could become more oversold.
GDXJ Daily w/ Breadth Indicators
The gold stocks could rally from here, but they are missing a few things we like to see around a bottom.
First, there is no positive divergence in the GDX advance-decline line. Second, GDX and GDXJ have not been outperforming Gold.
In addition, while the miners have rebounded a bit in recent days, none of the daily candles signal accumulation.
The miners are oversold and setting up for a rebound, but my guess is they aren’t quite there yet. A $2-$3 decline in GDX and GDXJ would make things easier by bringing them to strong support and likely pushing breadth indicators to oversold extremes.
There is a bit of uncertainty around this bottom but what is much less uncertain is buying high-quality juniors, trading well off their highs, and around excellent entry points.
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Source: Gold Stocks Approaching Bottom