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Commentary: With the recent strength in the U.S. dollar, gold and the companies that mine it have been mired in a correction. While these stocks have been correcting their move to recovery highs since late last fall, from a broader perspective it's clear that these stocks have technically been in a wide-trading range. The mining stocks recently tested the bottom of the range and turned higher, hinting that an end to the correction could be near. Currently, the gold miners are in a critical area on their charts, with a break above near-term resistance hinting at a resumption of the uptrend, and a move lower hinting at a larger topping process.
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In examining the chart of the Market Vectors Gold Miners ETF (NYSE:GDX), you can see the move to new highs in November and the failure to hold the breakout. GDX then proceeded to correct in three waves lower into the February low. Stepping back, you can see that this is all part of a larger trading range taking place from September to the present. GDX dipped under support in February, which could have shaken out some longs. It quickly snapped back into the base and is on its way to testing a resistance level near $47.50. GDX has cleared the 50-day moving average and a recent high. These are bullish clues, and could hint at an upside breakout.
Newmont Mining Corporation (NYSE:NEM) is an individual miner that is leading the charge. NEM has endured a very similar pattern to GDX, but was able to successfully break free of the channel that was framing the recent correction. NEM is probably too extended to be in a good buying position, but the recent strength is hinting toward a test of the November highs. (For more, see 8 Reasons To Own Gold.)
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| Source: StockCharts.com |
IAMGOLD Corp. (NYSE:IAG) is another gold miner that has been following a similar pattern to GDX. IAG recently tested the $13 level as support and there was an increase in volume as buyers stepped in. This level held on several occasions last year in September through November. This level remains a critical area to watch on the downside. Looking higher, IAG is in the process of testing the upper bounds of the channel it has been trading. If it can clear this area it could follow in NEM's tracks.
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| Source: StockCharts.com |
Yamana Gold, Inc. (NYSE:AUY) is a gold miner that has been lagging the other miners, but has managed to hold critical support near $10. AUY has also been unable to close back above its 50-day moving average. With $10 holding as support, it would appear that AUY is headed toward a test of the upper boundary of the channel. If AUY can’t make it to the top of the channel before heading back lower, this would be a valuable clue that the $10 area might give way.
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| Source: StockCharts.com |
Bottom Line
The miners are definitely painting a mixed picture right now. The large trading ranges being formed have the appearance of large topping patterns. While we can’t discount this possibility, the shakeout in GDX followed by the strength in NEM hints at underlying strength in the group. The miners are at a critical area here because a failure at these levels would put the topping thesis back in play. Much will depend on how the U.S. dollar and gold perform moving forward, but the miners have often moved ahead of the base metal. How these miners fare in the next week could have serious implications for their overall trend. (For more, see Using Technical Analysis In The Gold Markets.)
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Have a Great Day!
By Joey Fundora
Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.
At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.
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Posted March 03 2010 |
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