Gold Stocks (GDX): If Not Now, When?

That was the question I asked myself after being 100% cash into the last hour Thursday, and seeing the bottom fall out on the gold stocks yet again. Classic trading methodology teaches not to try and catch a falling knife. ‘I’m taking some positions’ thought I, which ended up being in the gold and silver bullion fund CEF (now selling at a discount), a few individual items I consider to be of relative quality and the leveraged NUGT in a high risk trading account.

The above was noted in an update to NFTRH subscribers in the last hour and certainly was not a call to action. It was just a note from a market manager who had been recording this frustrating journey since the gold stocks lost critical support in November. With that final plunge on Thursday afternoon, something bullish welled up inside me.

But as usual, the chart takes out the human element (e.g. “something bullish welled up inside me”), so let’s look at the one for GDX, as it shows an awe inspiring picture of volume.

GDX daily


I won’t recount the whole agonizing history of the breakdown from the September ‘QE’ euphoria. The busy chart does that for me. What is important now is the series of ‘rolling capitulations’ that manifested in Bear Flags, which in turn served to reset over sold status just enough to continue a series of plunges.

Thursday’s impulsive mega volume drop blew the Bollinger Bands® to their widest separation in maybe forever. RSI came to an opposite condition to its very over bought status from September. While on this subject, my stance in September/October was that gold stocks were over bought, and in need of a ‘healthy’ correction. That is what TA said. I was wrong about the “healthy” part and was proven so when the red dotted neckline broke down. We are going to be wrong, but it is what we do with that knowledge (deny or face it) that is important. When that critical support failed, we labeled the correction “abnormal”, and in need of constant risk management.
I may be right or I may be wrong in having bought the puke-fest close on Thursday. I have plenty of dry powder (too much, if a real rally is forthcoming), but these are the times we wait for people. That chart above has finally woken up with capitulation after a 6 month grind.

A long standing target of HUI 250-260 was hammered into the close. There are targets lower in the low 200′s (secular trend line by linear chart) and 100 (measurement off a huge topping pattern). This is all just a trade until it proves otherwise. But look at that chart again. People are being driven out with extreme cruelty and force. This is a picture of massive pain and tumult. Sometimes you just gotta buy that. As noted, this will be undone quickly if proven wrong.