Gold bug says trouble ahead for gold stocks

From Jeff Clark, Editor, Jeff Clark’s Market Minute:

I am not a fan of how gold stocks are trading right now.

As I’ve said many times this year, I think the gold sector will be much higher later this year than where it is today. So, I expect to have plenty of exposure to gold stocks in anticipation of a large rally in that sector.

But in the short term, if I set my gold-colored glasses aside and focus just on the technical action, it doesn’t look good.

Gold has held up reasonably well during this stock market correction. The yellow metal hit $1,355 on Monday. That put it up about 3% for 2018 – which is far better than the stock market.

But, GDX – despite rallying last week – has lagged that action. GDX started the year at $23.25. It closed yesterday at $21.62. So, while gold is up 3% in 2018, most gold stocks are down about 7%.

That’s not good. Gold stocks tend to lead the action in gold. So, with the performance of GDX lagging the performance in gold, we just might be setting up for a downside surprise in the gold sector.

Here’s the current chart of GDX…

Last Monday, GDX ran right up to the resistance of its 50-day moving average (MA) line. And then it turned back. On Wednesday, GDX tested its 9-day exponential moving average (EMA) – $21.87 – as support… and failed.

Now it looks like GDX is headed back down to the $21.25 support line – which has been tested twice this year already.

If GDX fails to hold at the $21.25 support level, then look out below. We could see a quick flush lower for the gold sector. GDX might press as low as $20. And that’s where I’ll be willing to step up and buy.

It’s a lot to ask for. And I’m not saying things will play out this way. But you should be prepared if the opportunity presents itself.

The next few days and weeks might be tough on the gold sector. But short-term weakness could present a chance at longer-term gains.

Best regards and good trading,

Jeff Clark

Crux note: No matter which direction the markets go, Jeff Clark’s Market Minute subscribers are always up to date on the trends taking shape – and the best ways to profit on them – hours before the opening bell rings.

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