I've been on the long gold miners (via GDX) theme for about a month now, you can see some of my thoughts in posts here and here. In the last 24 hours the gold miners have erupted from a powerful head & shoulders bottom pattern on the daily chart and broken out above resistance near $19.11:
The way this breakout came about, via a sideways consolidation over several weeks, appears to have given it considerable potential energy judging by the surge in the FORCE Index (at bottom). While one could now argue that GDX is 'overbought' on shorter time frames, this is exactly what we want to see to confirm a powerful trend change on longer time frames.
One can easily see the short term upside potential to $21+ in the above chart. Moreover, the FORCE Index on the daily time frame has barely moved into the green (although it will be much more in the green after today's session) - daily-RSI(14) is also barely above 60 which indicates there is still plenty of upside available before one has to be concerned that GDX is overbought on longer time frames.
As I wrote in the Trading Lab this morning, nobody owned gold miners Wednesday morning in any meaningful size and it takes large institutions a few days of steady buying to even reach "equal weight" exposure to the sector. This is a strong setup and there's more meat left on this bone. The open gap up at $20.56 looks like a reasonable short term upside target for GDX (that could even be achieved by Friday's close).
Disclosure: Author is long GDX at time of writing and may buy or sell at any time without notice. Managing risk is the most important aspect of trading. It's your money and your responsibility.
DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.