GDX Approaches Support

06/13/07 08:29:12 AM

by Arthur Hill

The Gold Miners ETF has been range-bound since November, and traders should prepare for a bounce as the exchange traded fund nears range support.

Security: GDX
Position: Hold

The Gold Miners ETF (GDX) has been locked in a trading range bound by 43 and 36. The exchange traded fund established resistance with three reaction highs and support with three reaction lows. The swings within the trading range have been greater than 10%, but it would have required some nifty trading to catch the reversals and turn a profit. With the ETF once again approaching support, it is time to start looking for reversal indications. See Figure 1.

FIGURE 1: GDX, DAILY. This exchange traded fund has been locked in a trading range for a while.

Graphic provided by: Telechart 2007.

Figure 2 focuses on the current downswing. The ETF peaked in April and has been channeling lower the last two months. There were two promising surges, but both failed and lower lows soon followed (red arrows). The last surge failed after two gaps and the ETF met resistance at the 50-day moving average. It would take a move above resistance at 40.50 to break the upper channel trendline, exceed the 50-day, and forge a higher high. This would fully reverse the downtrend and call for another assault on range resistance.

FIGURE 2: GDX, DAILY. A move above 40.50 could start a new upswing.

Graphic provided by: Telechart 2007.

While a move above 40.50 would start a new upswing, I am tuning into the relative strength index (RSI) for a breakout that could provide an earlier signal. This momentum indicator peaked two weeks before GDX and has been trending lower since early April. The indicator became oversold in late May and broke the red trendline when GDX surged above 40 in early June. This surge did not hold, but the RSI is still above its late May low and a positive divergence is working (green arrow). I am looking for a break above 50 to fully reverse the downtrend in momentum and turn bullish on the RSI. This would likely happen before a breakout in GDX and could be used for an earlier signal.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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GDX Approaches Support

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