Gold Mining Stocks Poker Update and the Gold Bugs Index Breakout - Technical Analysis

Two weeks ago, I published “Minding the Gold Mining Stocks and GDX” with a list of mining equities to consider and the $GDX chart. This evening is a good time to review the results before the market opens tomorrow morning and provide a technical analysis on the $HUI Gold Bugs Index breakout that occurred on Friday. In case you missed it, be sure to have a look at “Gold’s Alligator Tongue and Asian Short Squeeze Obliterated $1,380 Resistance,” which holds the key to a very important chart pattern in today’s analysis. To view a larger version of any chart, right-click on it and choose your “view image” option.

“After scanning all the mining stocks on June 2, my summer intern and I selected a few miners to consider from a technical analysis point of view. Many looked promising due to the rally in gold that began at the end of last week, but few adhered to selection preferences. The primary filter is high volume with a minimum of 1 million shares traded on an intraday basis and no dead minutes to ensure tradable liquidity for scalps or swings, and then chart patterns and studies that indicate the potential for a near-term rise in price. The last issue you want regardless of your investment time horizon is to be sitting on a large block of shares with no liquidity and a bid/ask flow and volume giving you the middle finger when trying to close out positions.”

Gold Mining Stocks to Consider - June 2019 Results

$GDX VanEck Vectors Gold Miners ETF basket as of Jun. 21, 2019. The mining stocks noted above are highlighted:

$GDX monthly chart as of Jun. 21, 2019 close…

Excerpt from the Feb. 8 monthly analysis:

“After GDX reached a high of $66.98 in Sep. 2011, the price plunged 88%+ over a 4 1/4-year period to end with a $12.40 low in Jan. 2016. The price pivoted to a high of $31.79 by Aug. 2016, then formed a Falling Wedge until its topside trendline was breached in Jan. 2019. The Dec. 2018 monthly buy volume reversed the StochRSI into a positive trend as the price began to exit the Falling Wedge and made a final push upwards in January. The DMI-ADX also reversed to a positive stance vs. negative, but it remains indecisive. The overhead 21 Exponential Moving Average (EMA) and Simple Moving Average (SMA) were taken out with hesitation and the 50 SMA at $23.20 is now resistance. The buy volume will need to come back to life for the price to breach the 50 SMA and rally to the 23.6% Fibonacci at $25.30, which is where previous attempts have failed over the last 2 years.”

Excerpt from the Jun. 7 monthly analysis:

“There has not been much of a change on the monthly chart since Feb., when the 50 SMA was topside resistance near $23.20 and the price action mirrored gold’s Falling Wedge off its Feb. 20 high of $1,346.75.”

The 50 SMA and EMA have been breached after 5 months of sideways chop and the Falling Wedge is history, but the 100 SMA overhead has not been challenged yet and the rally hesitated at the 23.6% Fibonacci retrace level. The most important indicator on this chart is the Alligator Tongue tease, as all the ingredients are present for liftoff if the ADX ventures into the mouth with an upside angle. The StochRSI and Momentum studies continue on an upward trend and the CCI is approaching overbought territory. The chart is bullish overall and the monthly buy volume is on track to best the previous month. The potential exists for a rapid $8 run in the near-term to the 38.2% Fibonacci level.

$GDX daily chart as of Jun. 21, 2019 close…

Excerpt from the Feb. 8 daily analysis:

 “The Flagpole & Flag pattern is consolidating above the 500 SMA, which was the last moving average to remain above the price action until Jan. 30. A 50/200 EMA Golden Cross occurred at the peak of the Flagpole. The DMI-ADX remains in a positive trend, the StochRSI is hesitating, and as noted on the monthly, the buy volume will need to come back to life for the price to breach the 50 SMA on the monthly and rally to the 23.6% Fibonacci level at $25.30.”

Excerpt from the Jun. 7 daily analysis:

“After mirroring gold’s Falling Wedge price action that began in late Feb. 2019 within GDX’s Descending Broadening Wedge, the price fell back below all the moving averages. The price recovered from all of those losses over the last seven trading sessions. Over the last three trading sessions, the price has attempted to break free from the topside trendline of the Descending Broadening Wedge. The DMI-ADX has a strong momentum signal, the StochRSI has topped out into overbought territory, and the CCI and Momentum studies remain elevated. The buy volumes spiked on the initial surge in price but fell off while challenging the topside trendline of the Descending Broadening Wedge. If gold manages to break above its $1,350 resistance with conviction in the near-term, I suspect the miners will follow with gains in price. The next price target and resistance on the GDX would be the overhead Fibonacci level at $25.30, and then the 38.2% Fibonacci at $33.25. The chart appears bullish, but it would be prudent to wait for gold to make its move first and see if volume on the GDX returns to a rising trend along with the price.”

The DMI-ADX Alligator Tongue on the daily chart was a picture perfect setup. The price rally out of the Descending Broadening Wedge was a result and it has not yet reached the overbought zone. All of the moving averages have realigned to a very bullish stance. The StochRSI, on the other hand, is indicative of being overbought while the CCI, Momentum, and Money Flow are all within their respective overbought zones and can remain up there for an extended period. The buy volume spike on Thursday followed Wednesday’s FOMC meeting, which launched the price into a gap-up that tapped the overhead 23.6% Fibonacci level. Friday printed a solid Closing Marubozu candlestick that may or may not solidify into a lasting rally in the near-term. If the price action takes a breather, it is important that the price gap not violate to the downside on a large sell volume spike. If gold continues on an upward path without much hesitation in the near-term, the miners will likely follow along for the ride. As I type tonight, the gold price is challenging last week’s high of $1,412 after closing around $1,398 on Friday.


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$HUI Weekly chart of NYSE Arca Gold BUGS Index and a link to the list of mining stocks in its basket.

“What it is: The Gold BUGS Index (also known as HUI) is one of two major gold indices that dominate the market. BUGS is an acronym for ‘Basket of Unhedged Gold Stocks.’ The index was introduced on March 15, 1996. How it works (Example): The Gold BUGS Index is made up exclusively of mining stocks that do not hedge their gold positions more than a year-and-a-half into the future. The Gold BUGS Index is comprised of 15 of the nation’s largest unhedged gold mining stocks. It is a modified equal-dollar weighted index. As a result, most of the index’s component stocks are equally weighted with the exception of a few of the largest stocks, which are more heavily weighted. Why it Matters: The Gold BUGS Index and the Philadelphia Gold and Silver Index (XAU) are the two most watched gold indices on the market.  HUI is more volatile. When gold prices are on the rise, the Gold BUGS Index provides an excellent way for investors to capitalize on that increase. The index has a high correlation to the spot price (current price) of gold. When the price of gold declines, the Gold BUGS Index tends to fall much faster than its hedged cousin, the XAU.”

The first chart is fully annotated. The second chart only serves to highlight where the 50 and 200 EMA are vs. the SMA on the first.

Not delineated on the weekly chart is Friday’s $10 gap-up in price, which launched the price out of the Cup ‘n Handle pattern. How far the price printed above the 200 moving average depends on whether you are looking at the EMA or SMA. Note how the EMA clearly acted as an overhead resistance area since late 2016, but the SMA made a beeline through the middle of the oscillating price chop. That is a perfect example of why I prefer the EMA even when analyzing charts beyond the daily period. No matter which chart you look at, the 50 EMA is history and the Alligator Tongue is setting up for a bullish run if the ADX (black line, a.k.a. the tongue) spikes to the upside. The HUI appears primed for a $40 run up to the 23.6% Fibonacci level.

The G20 meeting is where the POTUS and China’s president plan to have a meeting next week and discuss the trade war, and a separate meeting with Russia’s president on geopolitical issues (such as Iran) will likely have an impact on the markets and the Fed’s thinking on monetary policy going forward.

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Gold Mining Stocks Poker Update and the Gold Bugs Index Breakout - Technical Analysis

Gold Mining Stocks Poker Update and the Gold Bugs Index Breakout – Technical Analysis