The Gold Miners ETF, GDX, gapped up this morning to begin the holiday shortened week and has continued to rally 3.4%, trading at session highs as I type these words. As I analyzed the GDX chart this afternoon one question stuck out to me:
"Are these breakaway gaps?"
A couple months ago Tom Bruni of @BruniCharting published a highly insightful piece on gaps titled "Do All Gaps Need To Be Filled?" - the short answer to that question is NO. However, the following excerpt from the post sheds light on why 'breakaway gaps' are so powerful and noteworthy, and also why gold mining share investors should care about them today:
"A breakaway gap occurs when prices are breaking out of a range on significant volume, developing a new trend. As a result of a new trend bringing in new market participants and catching many off-sides, this gap generally does not fill and sees upside follow-through relatively quickly. The less that it’s filled, the more clear that a strong new trend has developed." ~ Tom Bruni
The January 25th gap higher in GDX has all the makings of a breakaway gap considering the subsequent powerful move higher, and the fact that it still has not come close to being filled in.
Is this morning's gap a breakaway gap?
It certainly has all the makings of a breakaway gap considering the action throughout today's trading session and context of where this gap is occurring on the GDX chart; breakaway gaps tend to occur when strong new trends are developing, as prices are breaking away from a range which has contained price for extended periods of time. The situation in GDX fits this criteria to a T given that the gold miner ETF has spent a tremendous amount of time between roughly $20 on the downside and $23 on the upside during the last several years.
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