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LINEAR REG CHANNEL


Gold Miners ETF Remains In Strong Uptrend

12/23/10 09:40:29 AM
by Alan R. Northam

Statistical analysis is used to show that the Market Vectors Gold Miners exchange traded fund remains in a strong long-term upward trend but also shows some early signs that the end may be near.

Security:   GDX
Position:   N/A

Figure 1 shows the long-term analysis of the Market Vectors Gold Miners ETF (GDX). On the price chart (Figure 1), shown in the lower panel, the 200-day linear regression line is plotted along with its upper and lower channel lines in green. This chart shows that the GDX is in a long-term uptrend. It also shows that when price wanders away from the linear regression line (middle green line), it always comes back. However, one day, price will wander away and not return. When this happens, we will know that a change in trend has occurred. In addition, note that when price reaches the upper and lower channel lines, price always reverses direction and heads back to the linear regression line. One day, price will break through either the upper or lower channel lines and in so doing will signal a change in trend.

FIGURE 1: GDX, DAILY. This chart shows the 200-day linear regression channel on the price chart in the bottom panel, the linear regression slope indicator in the top panel, the R-squared indicator in the second panel, and the standard error indicator in the third.
Graphic provided by: MetaStock.
 
The linear regression slope indicator continues to move higher, indicating that price continues to accelerate upward. This suggests that price will continue to move upward.


The R-squared indicator, however, has been moving sideways over the last two months at just above 0.8. This is an indication that the uptrend is as strong as it is going to get. This indicates that the next step is weakness. Thus, we should start to see the linear regression slope indicator start to turn down at some point, which will then signal that price has started to decelerate. Note that price deceleration normally occurs just before a change in trend.


The standard error indicator is well below its 200-day simple moving average, indicating low volatility. Low volatility means that price should continue in its current direction. However, I do see that the standard error indicator is starting to move upward. This is an early warning that price may start to become more volatile. High volatility normally occurs at market tops and bottoms. So once the standard error indicator moves above its 200-day simple moving average (SMA), we should start to expect a long-term change to occur for GDX.

In conclusion, this long-term analysis shows that the Gold Miners ETF remains in a strong uptrend. As long as the linear regression slope indicator continues to point upward, R-squared remains at high levels, and the standard error indicator remains at low levels, price should continue to move upward along the linear regression line. However, there are some cracks in this long-term uptrend that suggest this market may be getting close to the end of its upward journey. Once the R-squared indicator starts to turn down and the standard error indicator starts moving upward, expect an end to this long-term upward trend.




Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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