The “Great Gold Stock Rally” of 2021 is going strong, and it still has a long way to go. But, the gold sector is due for a pause.
The VanEck Vectors Gold Miners Fund (GDX) is up 17% since we announced the start of the rally almost two months ago. That’s one heck of a move for a previously lagging sector.
And, we’ll likely see much bigger gains in the months ahead…
For the next several days, though, the gold stocks need a break.
Here’s an updated chart of GDX…
Since bottoming in early March, GDX has been making a series of higher highs and higher lows. This action has created a bullish trading channel on the chart (the dashed blue lines).
GDX is now trading near the upper end of its trading channel. All of the various moving averages (the red, blue, and green lines) are expanded far away from each other. And, the momentum indicators at the bottom of the chart (MACD, RSI, and CCI) have pushed into overbought territory.
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So, there’s not much energy left to fuel another push higher.
A few days of choppy, consolidating action – or even a decline towards the bottom of the trading channel, near $38 – would be a good thing. That sort of action would work off the overbought conditions.
It would allow the various moving averages to come together. And, it would provide a launching pad for the next leg of the gold stock rally.
There’s not enough downside potential for traders to short the gold stocks and attempt to profit on a decline. That’s a high-risk/low-reward trade.
Instead, traders should wait for a pullback in the gold stocks, and then use it as a chance to add exposure to the sector.
The Great Gold Stock Rally of 2021 isn’t over yet… It’s just taking a break.
Best regards and good trading,
Jeff Clark
Reader Mailbag
In today’s mailbag, Delta Report member Kevin compliments Eric on his recent essay about growth stock lifecycles…
Hi Jeff, I love the articles that Eric is contributing. They’re super high value. Tuesday’s article on the “Hype Cycle” Turnaround was fantastic. Thank you for adding him to your staff. Kind regards.
– Kevin
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming – and send us any questions – at [email protected].