Everyone seems to be down in the dumps lately. Tax loss selling, Black Friday, Black Monday, market crash blah blah blah. Suddenly everything i'm reading is doom and gloom calling for lower prices on all assets regardless of what they are.
When I see such a strong consensus that everything is going to shit I look for signs that maybe the crowd could be wrong. While I am certainly not a raging bull right now either, I must say that both the gold chart and the GDX chart offer some reasons to be optimistic, at least on the precious metals sector.
The first reason to be optimistic is that nobody seems to think gold and the miners can go higher anytime soon, even long time bulls are bearish right now. The second reason to be optimistic are the charts, let me show you...
GDX (Daily)
GDX has formed a potentially powerful chart pattern here that is called a '5-point' symmetrical triangle which can often result in powerful directional moves once it resolves. GDX made an emotional low in mid-August followed by a lower low on fading volume in September which quickly reversed higher (in a sign that the lower low was made on weak selling pressure and simply a lack of buying conviction by bulls). Since then we've seen GDX hold support near $18.25 while consolidating largely between $19 and $20. Meanwhile, Relative Strength is above the median line near the area where I typically like to look for breakout setups (between 55 and 60) and MACD is trending stronger with plenty of room to move more positive in the event of an upside resolution from the symmetrical triangle.
In summary, momentum indicators are positive and showing indications they could really take off soon. This is what we like to see, especially when sentiment is generally very negative. Seasonal tailwinds should also support the gold miners over the next few months with an average 7.2% gain between the end of November and the end of February for the Gold Bugs Index (HUI) over the last twenty years.
Turning to the gold chart we have a series of higher lows in place and a 50-day moving average that has turned up to follow the recent price trend:
Gold (Daily)
You would never know that gold is actually up over the last couple of months judging by investor sentiment on the yellow metal. Despite the relatively positive price action in gold over the last couple of weeks the Daily Sentiment Index (DSI) is still down at 23, which gives plenty of room for price to move higher before sentiment even reaches mildly optimistic territory. A breakout above resistance near $1240 would target a move up towards $1280 over the coming weeks, meanwhile $1200 is strong support followed by $1180.
I like setups in which the consensus is decidedly negative while price action is beginning to offer some reasons to be optimistic. This is the situation we have right now in the precious metals space and with a little luck the next couple of months could be good ones for the sector.
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