It’s make or break time for gold (GLD) and gold stocks (GDX). We mentioned last week that we weren’t very optimistic for precious metals based on the extended down trend, the break of medium term up trend lines, and the consolidation of GDX below a longer term down trend line. GLD has held up better, but it now appears that it is resuming its downtrend. We mentioned that if $160 was broken then $150 would most likely be back in play. Well, $160 broke yesterday and today we got a close below it again. Meanwhile GDX in in the $41 area visiting the lows from last July. This just isn’t a good situation for precious metals shares. If GLD revisits $150 then GDX will almost certainly break below $39 in a very sharp and very ugly way.
There are a few positives. GLD is still above the up trend line from last May’s lows. Smoothed Twitter sentiment for GLD has a small positive divergence with price (even though the daily had a fairly negative print two days ago). If the trend line can hold there is a chance that GLD can rally enough to break the apex of its triangle formation. GDX is showing a very large positive divergence on both daily and smoothed sentiment. This gives the bulls a tiny bit of hope that buyers might appear in the $39 to $40 area. The problem with this theory is that both daily and smoothed sentiment are vacillating back and forth around the zero line. With it below zero at present I’m pessimistic about the ability of the May lows to hold. If enough traders aren’t tweeting about their desire to buy GDX in this area then chances are they might be sellers on a break lower. As you know we believe that double bottoms are bad places to make intermediate term buys as the trend usually continues and the lows are broken. The next few days (maybe a week) are going to be critical for GLD and GDX as they will most likely signal the next intermediate term direction.