The gold sector got smacked down hard yesterday. The VanEck Vectors Gold Miners Fund (GDX) dropped 1.6% and basically gave back all of last week’s gains.
The decline was a little inconvenient, since it was just last Thursday when I wrote that the gold sector was ready to rally. Specifically, I said that if GDX could break above resistance at the $23.90 level, then it could quickly head back towards the September high of $25.50.
As you can see from the following chart, GDX ran right up to $23.90 on Friday. Resistance held. And the gold sector turned lower yesterday…
As you can see from the blue arrows on the chart, it’s not unusual for GDX to turn lower in the short term following the sort of MACD crossover I wrote about last week.
But that weakness should be temporary. As long as the black line on the MACD chart remains above the red line, we still have the setup for a rally in the gold sector.
On the other hand, if the black line rolls over and crosses below the red line, then that “bearish cross” means the gold sector has more work to do on the downside.
For the moment, I still favor the upside. And even if we do get a bearish cross on the MACD, the $22.80-$23.00 level looks like solid support for GDX. So, the downside appears limited.
Traders should keep an eye on this chart for the next few days. The setup still looks bullish to me. But GDX is going to have to break above the $23.90 level in order to spark a stronger move higher.
Best regards and good trading,
Jeff Clark
P.S. Despite the week’s action so far, are you planning on any bullish gold trades? Or are you expecting lower gold prices ahead?
Let me know your thoughts – along with any other questions or suggestions – right here.
Reader Mailbag
I appreciate the risk of put options where the holder of the option can put the option to you and force you to buy the option shares. What can the holder of an option call do if the price of the stock falls below the option price?
– George
Thanks for your question, George.
If the stock price falls below the strike price, the holder of the option doesn't do anything. If he were to exercise his right and buy the stock, he would be doing so at a price higher than where it is currently trading. And there's no real reason to do that.
– Jeff