Jordan Roy-Byrne CMT, MFTA on 2020-09-11 19:05:42.0
During bull markets, gold stocks (and the entire precious metals sector) tend to oscillate between correction and consolidation or impulsive advance. Commodities and precious metals are emotional markets, and this can make the medium to intermediate-term trends prominent and easier to define.
At present, the sector is in a period of correction and consolidation, and it should continue.
Typically, the impulsive advances last anywhere between six to twelve months, and the subsequent periods of correction and consolidation can last nearly as long.
The impulsive advance that began from the COVID low in March lasted only four and a half months. This nearly 200% move in GDX and over 200% move in GDXJ will undoubtedly require more than a month of correction.
The best historical comparison is the rebound from October 2008. Then, GDX rebounded nearly 140% in only four months.
From there, it corrected 23% and after a rally, 21%. The correction lasted two months. Then GDX surged another 80% over the next seven months.
Because the correction has more time to go, one should not rule out the potential for a test of GDXJ $51 and GDX $37 and the 100-day moving averages. (In 2009, the correction after the four-month rebound twice tested the 100-day moving average).
GDXJ (top), GDXJ (bottom)
Note, Gold, which is trading at $1948/oz as I pen this, has important support at $1920/oz. A close below that support could lead to the low $1800s. That breakdown could coincide with GDX and GDXJ testing the aforementioned support levels.
The primary trend is higher, and the most money will be made via buy and hold. It's not time to buy yet, but be patient and wait for the correction to run its course. It will be time to buy soon enough.
