Over the past 4 months precious metals mining stocks have carved out a nice W bottom which foretold the story of higher prices ahead. With a 30% bounce already in the books many are wondering if this is “THE” bottom and it’s time to jump back on the bandwagon. Looking at the daily GDX chart below you can see it is constructive in that the RSI is bullishly aligned with more room to the upside before it gets into overbought range and the MACD is above its signal line and trending higher. We are sitting right on an important (blue) line that is currently acting as support. If price can stay above this line and move above the 200DMA, the $27.5 price is the likely target for an exhaustion of this current move as it has acted as strong resistance in the past rejecting all pushes higher.
What about the bigger picture? Is this THE bottom so that we can just buy and hold for months or even years? or should this bounce be considered just a trade opportunity? To answer those questions I turn to the longer period time period charts for some hints. You can see in the chart below after a one year consolidation in 2011 the miners have just been decimated losing almost 75% of their value from peak to trough. Along the way price has attempted to bottom 3 times (including the current try). The first was a W bottom in the middle of 2012 where price struggled to get back into the consolidation zone and subsequently began its decent in earnest. At the end of 2013 price formed a textbook inverse head and shoulders bottom which, once again, had all the goldbugs calling for a bottom. Their hopes were dashed once price struggled at the neckline, reversed then continued its waterfall decline. Looking at today, once again price has formed a very nice bottoming pattern and again bringing the remaining goldbugs (yup, there are a few left) out from under their rocks to proclaim the BOTTOMZ’IN. It could be, but until price can form a higher high and higher low, the current (down) trend needs to be respected. And, until the ratio of GDX/SP500 reverses course (see bottom pane), there is no real incentive to direct your investing dollars elsewhere. Therefore it is my opinion any attempt to invest in this bounce should be looked at as a short-term trading opportunity and not a longer term swing.