This Setup Is Inching Us Toward Another Gold Run

Earlier this month, we did an up-close look at the VanEck Gold Miners ETF (GDX).

After a strong downtrend from April to October 2022, GDX rallied strongly into the start of 2023.

From its September 26 low ($21.52) to its high on January 25 ($33.34), GDX gained an impressive 55%.

However, after topping out in late January, GDX rolled over and began to trend steadily lower.

And on February 13, GDX had just bearishly broken below its 50-day Moving Average (MA).

Since then, a further wave of selling has put GDX into oversold territory. So today, we’ll see what’s in store from here…

Higher Highs

On the chart below, you can see the huge reversal and bearish trend that followed GDX’s peak at ‘A.’

That reversal coincided with the Relative Strength Index (RSI) making an inverse ‘V’ and turning lower from overbought territory (upper grey dashed line).

Take a look…

VanEck Gold Miners ETF (GDX)

Source: eSignal

GDX’s down move then gathered pace in conjunction with two major bearish signals…

1. The RSI remained in the lower half of its range (below the green line).

2. The 10-day MA (red line) crossed below the 50-day MA (blue line), with both MAs then turning down.

As you can see, the 10-day MA remained below the 50-day MA until GDX’s up move late last year.

You’ll also notice the action of the RSI…

Each of GDX’s counter-rallies began with the RSI forming a ‘V’ (red circles) out of oversold territory (lower grey dashed line).

After rallying from one of those oversold signals in late September, GDX’s rally stalled with the RSI stuck around resistance.

But as the RSI steadily gained traction in its upper band, GDX’s rally continued… right up until another common pattern warned of a potential reversal.

While GDX was making higher highs (upper orange line), the RSI was making lower highs (lower orange line). This led to GDX’s reversal at ‘B.’

Take another look…

VanEck Gold Miners ETF (GDX)

Source: eSignal

When we last looked at GDX (red arrow), the RSI had continued to track lower from that peak and had just broken down through support.

The 10-day MA was also closing in fast on the 50-day MA.

But since then, the two MAs have now crossed. And the RSI has tracked down to touch the oversold line (right red circle).

So, what can we expect from here?

A Potential Setup for a Bounce

What happens around the RSI’s oversold territory will be key.

If the RSI can form another ‘V’ and rally higher, then that could set GDX for a quick bounce.

And it could potentially set GDX to make a higher low than its previous one in September. That would be a bullish signal for a potential long trade.

Any up move beyond that would be dependent on the RSI breaking back into the upper half of its range… and the 10-day MA breaking back above the 50-day MA.

However, if the RSI tracks along the oversold line without any clear bounce, then GDX’s retracement will run further.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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