New Gold-Stock Upleg

The gold miners’ stocks are rallying on balance again, following their recent multi-month correction. For several weeks now they’ve been carving both higher lows and highs, which sure appears to be forming a nascent uptrend. That increases the odds a new bull-market upleg is getting underway in this high-flying sector. While still dependent on gold’s fortunes, plenty of technical evidence supports a new-upleg thesis.

The leading and dominant gold-stock benchmark and trading vehicle is the GDX VanEck Vectors Gold Miners ETF. As of the middle of this week, GDX commanded nearly 2/3rds of all the capital deployed in gold stocks through all American gold-stock ETFs! GDX’s remarkable price action this year continues to boost its popularity among traders. The major gold stocks GDX contains more than doubled in mid-2020!

Like everything else, the gold miners’ stocks got sucked into mid-March’s extreme stock panic spawned by government lockdown orders attempting to slow COVID-19’s spread. That beat this contrarian sector to radically-oversold lows wildly disconnected from gold miners’ strong underlying fundamentals. GDX’s violent rebound upleg out of that huge anomaly proved a moonshot, the major gold stocks just skyrocketed.

In only 4.8 months between mid-March to early August, this leading gold-stock ETF soared a stupendous 134.1% higher! But such extraordinarily-big-and-fast gains naturally left gold stocks very overbought, so they rolled over into a major correction. These essential post-upleg selloffs keep bulls healthy, extending their longevity by rebalancing both sentiment and technicals. That process seemed to play out by late November.

From its euphoric early-August peak until then, GDX fell 24.9% over 3.6 months. A couple of weeks ago before the major gold stocks’ new uptrend became apparent, I wrote an essay on the maturing gold-stock correction. GDX’s bullish technical action since really increases the likelihood that correction indeed gave up its ghost in late November. If that proves true, gold stocks’ next bull-market upleg has started marching.

GDX’s correction apparently culminated with a 2.7% drop to $33.42 on November 24th. That had the feel of a correction-slaying capitulation too, capping a 6.9% two-day plunge and a 12.1% seven-trading-day one! Prevailing sentiment deteriorated fast on so much pain, with bearishness flaring dramatically. This contrarian sector was deeply out of favor heading into Thanksgiving. That’s the stuff bottomings are made of.

In the several weeks since that ugly gold-stock trough, GDX has carved one higher low and two higher highs. In the first eight trading days after that bottom, GDX blasted 9.2% higher to $36.50. But such a fast V-bounce left gold stocks overextended, so GDX started selling off again to rebound at $34.29 five trading days later. Very importantly, that latest low this Monday was 2.6% above the late-November bottoming.

A capitulation nadir and subsequent higher low after a maturing correction form a rising lower-support line. That’s half of a new uptrend. The major gold miners again bounced sharply out of that, with GDX surging 5.1% this Tuesday and Wednesday. The resulting $36.03 mid-week close wasn’t a new high yet, but it was getting close. On Thursday as I penned this essay, GDX surged another 3.5% to close up at $37.29!

That second higher high since the correction bottoming was 2.2% above the initial bounce high. Those two higher highs together form a parallel rising upper-resistance line. So the major gold stocks are now in a new uptrend! And odds are mounting that it will grow into their next bull-market upleg. That portends more big gains coming in gold stocks in the months ahead, increasing the importance of getting deployed.

Whether or not GDX’s budding uptrend blossoms into a major new upleg depends on two things. Most importantly is how gold itself fares. The major gold stocks tend to amplify material gold moves by 2x to 3x. So if a new gold upleg is underway, gold stocks will follow it higher. My essay last week looked at gold’s own recent correction, which was right in line with its bull precedent in both total size and duration!

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