A Tradable Relief Rally in the Gold Miners (GDX)?
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Moving lower with the price and prospects for the underlying commodity, ETF Market Vectors Gold Miners (NYSE: GDX) has looked like death this year; falling 40% versus a 17% gain in the S&P 500. However, prospects could be turning around, at least in the short term.
MKM Partners Chief Market Technician Katie Stockton thinks a tradable relief rally is likely in absolute and relative terms.
"Gold and most gold mining stocks are in downtrends, with negative intermediate-term momentum, so there is inherent risk to taking counter-trend positions," Stockton said. "With that in mind, we would consider adding some exposure to take advantage of a short-term relief rally within the downtrend with strict attention to risk management. The trade is likely to play out in the near term, or not at all, so we expect to know if it is "working" in the next week or two."
On the technicals, Stockton explains: "GDX is showing signs of exhaustion, having registered a counter-trend "buy" signal per the DeMark indicators on its weekly chart. The “sell” signal from the same model in late 2011 was very timely, increasing the likelihood of some reaction to the upside this time around. There is potential support near current levels, based on the bottom boundary of GDX's downtrend channel, and prolonged oversold conditions have given way to subtle improvement in short-term momentum. An upmove within the channel could be impressive, noting that initial resistance is approximately $39.10. However, noting the negative intermediate-term momentum behind GDX, we are only looking for a move into the mid-$30s."
For a derivatives strategy, the technician recommends the July 28.5/34 call
spreads for $1.22.
MKM Partners Chief Market Technician Katie Stockton thinks a tradable relief rally is likely in absolute and relative terms.
"Gold and most gold mining stocks are in downtrends, with negative intermediate-term momentum, so there is inherent risk to taking counter-trend positions," Stockton said. "With that in mind, we would consider adding some exposure to take advantage of a short-term relief rally within the downtrend with strict attention to risk management. The trade is likely to play out in the near term, or not at all, so we expect to know if it is "working" in the next week or two."
On the technicals, Stockton explains: "GDX is showing signs of exhaustion, having registered a counter-trend "buy" signal per the DeMark indicators on its weekly chart. The “sell” signal from the same model in late 2011 was very timely, increasing the likelihood of some reaction to the upside this time around. There is potential support near current levels, based on the bottom boundary of GDX's downtrend channel, and prolonged oversold conditions have given way to subtle improvement in short-term momentum. An upmove within the channel could be impressive, noting that initial resistance is approximately $39.10. However, noting the negative intermediate-term momentum behind GDX, we are only looking for a move into the mid-$30s."
For a derivatives strategy, the technician recommends the July 28.5/34 call
spreads for $1.22.
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