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Precious Metals Miners are breaking out or on the verge of breaking out of bottoming patterns

 -- Published: Tuesday, 14 January 2014 | Print  | Disqus 

By Scott Pluschau

The Gold Miners (GDX), Silver Miners (SIL), and the Junior Gold Miners (GDXJ) were showing serious relative strength yesterday as the S&P 500 had one of its worst days in months. The S&P 500 was down with above average Volume. The majority of price action with above average Volume the past year in the Daily timeframe in the S&P 500 has been with Bearish Price action, which I believe is a pattern of "Distribution" as a market pushes higher and higher. I have described the pattern in Volume in the US Equity Indexes in further detail for the Dow Jones and Russell 2000 futures on the blog recently. The Gold Miners (GDX) has one of the most glaring patterns of "Accumulation" I have seen which I highlighted in a prior post here.

The bottom line is it is very difficult to "time" the bottoms or tops in markets. It becomes a deadly ego game when catching the proverbial "falling knife", but at least here there is some structure or reasons to consider a higher probability position looking at the charts here now.

Let's look at the break above resistance in GDX and GDXJ along with SIL on the verge of the near term change in trend. The Weekly charts have more important levels to clear but this is promising start for a reversal in trend to begin.

(Click on charts to expand)


The left hand side chart is a Daily, the right hand side is a Weekly. Notice on the Daily the blue rectangle on the left hand side price chart that shows a "Rectangle" or "Balance Area" reversal pattern which took place below the significant horizontal support/resistance and now has the breakout to the upside yesterday. The right hand side chart has a blue rectangle highlighting the massive Volume on the lower subgraph. This is coming after a relentless and serious downward trend, which is a sign of a washout as shares are going from weak hands to strong hands in a big way.


Notice the breakout above resistance yesterday in the Junior Gold Miners on the left hand side Daily chart was accompanied by heavy Volume which I highlighted and this was Bullish, especially in the context of the S&P 500 going south. GDXJ also had a similar "Rectangle" or "Balance Area" prior to the sharp move above resistance.


The Silver Miners are below resistance here but the past few days of Bullish price action has been seeing above average Volume. Rather than a "Rectangle" formation the SIL broke out through a minor trendline and then saw this extended trendline get tested before rallying again. SIL looks ripe to follow through here like the Gold Miners and Junior Gold Miners did yesterday.


The S&P 500 is on horizontal support and has a decent drop to go and test trendline support on the Daily chart as well as a much more significant drop to the return line of the Weekly chart rising Bullish channel. Should the Precious Metals Miners continue to show relative strength in the face of weakness in the SPY, this would be a major development.

Stay tuned to the latest developments in the markets by joining me on Twitter/Stocktwits/Linked In @ Scott Pluschau or you may use the "Follow By Email" option on the right hand side of the blog.

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 -- Published: Tuesday, 14 January 2014 | E-Mail  | Print  | Source:

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