A few weeks ago we did an update on Gold (GLD) and Gold Stocks (GDX) where where stated that it was critical for them to hold their trend lines from the May 2012 lows. Well GLD has held the trend line, but GDX has not. We’re getting concerned that gold stocks are going to renew their down trend.
We’ll give the negatives first, then move on to the positives (or what might better be called a sliver of hope). We already mentioned GDX breaking its most recent up trend line. Now there’s more bad news in that GDX has also broken back below the downward sloping trend line that goes back to the August 2011 highs. It is now consolidating below that line. When GDX broke and consolidated above it we thought the worst was over for precious metals. Now that it’s consolidating below the odds favor a resumption of the down trend. The break of both trend lines brought with it very negative Twitter sentiment that shows the backs of the bulls being broken. This concerns us that buyers won’t show up on a retest of the $39 to $40 area.
Our hope for GDX rests entirely on GLD so you can see we’re not that optimistic. While GDX has broken all support levels except for the May 2012 lows, GLD is still holding above the trend line out of those lows. The up move from the December 2012 lows continues to be confirmed by Twitter sentiment. Our major concern for GLD at this point is that the current downward move is dragging on way too long. It is now almost as long as the rally out of the May lows. Healthy corrections are usually much shorter in duration that the rally they retrace. In addition, the current up move from December is starting to look like a correction of the October down leg. If the short term pattern is corrective then a break of about $160 would signal a sharp move to the lower trend line and subsequent break…which would put the lows in the $150 area back in play. For a bullish resolution we really want to see the current down trend line broken decisively. If GLD breaks higher it should drag GDX with it. We’ll probably only have to wait a few weeks or maybe a month for a direction as the he apex of the triangle being painted is very near.
Twitter sentiment for silver (SLV) seems to be mirroring price. When this happens it suggests confusion by traders which leads to chasing price. It is also painting a triangle, but with an apex too far away to be of much use to help us determine GLD’s path.