Gold Mining Stocks

The SPDR Gold Trust (ETF) appears to be close to a weekly confirmed MACD histogram buy signal.  The GLD ETF needs to get a weekly close tomorrow above 118.42.  Currently it is trading at 118.56.

A confirmed weekly buy signal on the MACD histogram tomorrow would in our view be very significant as we are just 2 weeks away from the seasonally very powerful month of September for the gold market.

The weekly chart also shows a weekly reversal hammer of 2 weeks ago in which the trading low of that week tested the neckline of the previous head and shoulders bottoming formation.

The SPDR Gold Trust (ETF) also shows that it was able to crawl back above topside above the longer term up trendline.  This recent move appears to be creating a handle of yet another cup and handle formation which the gold market has been quite famous for time and time again.

One could also argue that the recent 8 to 9 month consolidation resembles that of an ascending triangle formation but is also a cup and handle pattern contained within it.

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The Market Vectors Gold Miners ETF monthly long term candlestick chart looks very constructive right now.  The GDX has pretty much been left for dead for almost a year now.  The argument has been that because the mining stock index has not broken out to new all time highs, that we should assume it is not confirming the upside move in the gold price and that gold should break down going forward.

I prefer to judge the chart of the Market Vectors Gold Miners ETF on a stand alone basis.  We can clearly see that the GDX has formed a massive almost 3 year long head and shoulders bottoming formation that has a long term upside measured target of about 85.

The symmetry of the long term GDX candlestick chart shows that the left shoulder runs about 9 months long and the current right shoulder is also about 9 months long.  Head and shoulders patterns usually tend to symmetry in terms of time.  This could mean that the GDX is headed for a massive upside breakout from this pattern above the 53 neckline in the months ahead.

Many have waited for this gold mining ETF to break down but if we make an objective read on it over the course of the last 9 months it cannot be said that any break down has occurred at all.  On the contrary the GDX has simply built more sideways cause for the next big move.  This ETF has basically put everyone to sleep at precisely the time they should start to focus on the GDX closely.

I cannot say whether or not this mining ETF is going to get a massive breakout in September.  But the bullish seasonal time frame for gold and mining shares during September give extra weight to a breakout scenario soon.

For a breakout to be valid we need to see a massive monthly candlestick breakout bar on massive volume.  Because the chart here is so long term, the monthly price breakout will of course appear to be happening in slow motion on the daily and weekly charts.

If the Market Vectors Gold Miners ETF gets a monthly price breakout going it could potentially start a feeding frenzy in the junior and big cap gold mining sector and finally start to kick start the mining shares again.

If there is one simple truth about the recession of 2008, it is that supply has been further constrained. 

I still have seen no sign of a mass public love affair with gold mining stocks. Where is the hysteria? It doesn’t exist.

I think the GDX is going to play catch up to the gold price soon and break out topside and alight a fire under many junior and micro cap mining stocks.  A breakout above the neckline in this index could start to cause very heavy upside speculation across the board.

The junior mining ETF is the Market Vectors Junior Gold Miners ETF symbol GDXJ.

You really need to study this long term gold mining stock index chart.  It was sent to me by a buddy of mine and the chart was made by one of the regular blog posters over at www.jsmineset.com . 

It is a super long term gold mining stock index chart that goes all the way back to the 1920’s.  What absolutely blows my mind about this chart is that it shows that the GOLD MINING STOCK sector has still not really even had a breakout from the trading range that began in 1980 !!!

This is an amazing chart!

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Timberline Resources Corp TLR chart is starting to look quite bullish to me again on both the daily and the weekly price chart.  I had talked about Timberline Resources Corp several other times in the past but it never really seemed to get anything done.

But now it has corrected along with the gold price and if I am correct that the gold price is getting close to shooting higher again, then TLR should eventually benefit from a nice gold price advance.

The problem with TLR is liquidity, somewhat spotty trading and a slow learning curve.  I suspect that even if the gold price does break out north, that Timberline Resources Corp  may take its own sweet time in getting a follow on break out.  That has been my experience with some of these junior gold stocks.

Still the chart structure looks good and it may be a nice position trade for the summer and into the end of 2010.

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The XAU Gold and Silver Mining stock index has a reputation for being extremely volatile and choppy.  It is a slow moving beast and is also represented by the GDX Market Vectors Gold Miners ETF.

Mining stocks and mining stock indices remind me of biotech stocks because they both seem to trade very erratically with a few exceptions and are definitely a swing traders paradise.  In fact they are probably best suited for swing trading.

The long term XAU Mining Stock Index chart going all the way back to  1984 is quite a beautiful looking long term chart.  It shows that the XAU has managed to break out northward from a 20+ year sideways trading range.

In 2008 it broke down back inside this trading range but then fully recovered and now is once again in breakout territory outside of this large trading range.

The chart shown here is the quarterly candlestick chart and one of the most amazing candles I have ever seen is the quarterly reversal hammer candle in the XAU Index.  That candle is probably the most meaningful candle I have ever seen, and even more so because this is a quarterly candle chart.

The cup and handle tendency of this chart seems to suggest that another extended type breakout move is coming, but only if and when the XAU can trade above 200.  If it gets above 200 then I believe it will be on high alert for a huge potential final blowoff move.

The volatility of 2008 in just 2 quarters says to me that this index has the potential to make huge moves.  If it can retrace an almost 8 year bull market in only two quarters, then I don’t see why it can’t play catch up to the gold price in two quarters as well.   But first it really needs to get above 200 before we can say anything serious is about to happen.

The cup and handle tendency is actually somewhat sloppy.  The handle retraced far too much of the up portion of the chart even though it was an intra-quarter type retracement on the quarterly candlesticks.

This ‘pseudo handle’ itself right now looks like a large head and shoulders bottom formation with a very deep head portion.  It seems unusual for a head and shoulders bottoming formation to form at such a high point in the overall trend and to me is a little bit suspect. 

But still, as long as price can hold above the breakout area and somehow manage to get a move going above 200, then it will be an all green signal for this index.  But for now it still has some work to do…

If this index really does fulfill the measurement implications of not only the head and shoulders bottom but also the larger cup and handle, then it would seem that a massive inflationary bout is coming down the road… perhaps sooner than we are prepared for.

Timberline Resources is holding up quite well above its 50 day moving average (red line) and the recent 3 day decline has been on dramatically lighter volume.  The gold price has made a nice upside reversal reaction as well as the GDX mining stock index and I suspect that both will retrace upwards a bit this week and then move into longer consolidations perhaps 2 to 4 weeks long.

TLR could be forming a small handle of a cup and handle type formation here.  A large surge in volume is really going to be the only clue of a breakout type move out of this pattern.  But there is also the risk it may just flat line for the rest of December as it has done in the past.

Still worth keeping an eye on TLR in my opinion as it is a nice upward trending gold stock in a basically sideways consolidation with low volume decline days and big volume accumulation days.

Gold is getting hit bad today and if you look at the dollar amount on kitco.com it looks a lot worse than if you just focus on the price chart.  The GLD ETF was overdue for some type of consolidation and using the employment report news today seemed like a good enough excuse for the big money crowd to slam it down.

Right now my take is that we are going to enter some type of sideways consolidation perhaps a month long before going higher again.  I say that because I think today’s price destruction in the GLD combined with the huge volume should be enough damage to start a trend change/ and or consolidation.

The chart above is the GLD ETF in the 2007 to 2008 time frame.  The red arrows point to heavy selling days that damaged the up trend enough to get the GLD into consolidation mode for a while.  So I am expecting something similar to what occurred in the chart above.

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Before I even begin to talk about CVRG let me say this.  CVRG is a PINKSHEET penny stock that is extremely speculative and has all the normal disadvantages that normally come with pink sheet stocks.  I consider penny stocks in some ways less risky than options because they do not have time decay, premium and expiration, but that does not mean they still cannot cause major heart ache.

I made a decision a while back not to talk too much about pink sheet penny stocks here at BestOnlineTrades because they are an entirely different animal and just do not seem appropriate to mix in with all the other ‘big board’ topics I cover here.  But occasionally I make an exception and I am doing that now.

So having said that, and since I have free editorial reign here at BestOnlineTrades I want to tell you about CVRG, Converge Global.  It is a pinksheet gold mining penny stock.  The ONLY reasons I think CVRG could become a nice play for the next 2 to 3 months are because of the technical setup that exist within CVRG and also the backdrop of a parabolic exploding gold and silver price.

We have already seen a number of gold mining penny stocks blast higher in recent weeks and I expect this trend to continue.  SGCP (Sierra Gold Corp) up 900% from its recent lows, BRYN (Bryn Resources) up 4042% from its recent lows, KATX (Kat Exploration) up 1035% from its recent lows.  So clearly speculation is ripe and the gold mining pinksheet penny stocks are on fire and in heavy demand.  Part of the reason for this is simply a matter of supply and demand.  There are so few gold stocks to choose from that what you will see is ‘gold money’ funnel more easily into the micro cap gold mining plays on pure speculation and lack of other choices.

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The gold price move seems to be well underway now and today we saw the US Dollar Index have its worst one day drop since July 31st.  The dollar could be entering free fall mode for a week or two that forms some type of capitulation low.  Gold is overbought now based on RSI levels, but at this point I am not seeing any negative divergences.  So it could get a few drops here and there and maybe even form some type of consolidation pattern only to take off again later.

The gold bulls live above the 70 RSI level and they should control the show for at least a couple more months.  The way the gold parabolic blow off and also the broad market are setting up is for a big finale of a run that coincides with the US Dollar Index hitting support near the 70 range.

In the mean time TLR continues to behave quite well and now looks poised for the classic ‘15 minutes of fame’.  Well actually it will be more than just 15 minutes.  Today is probably the first day of a 5 to 10 day rally in TLR.  I am looking for 2.00 as a target to exit.  I think it may have a decent chance to get there within the next 5 to 10 trading days.

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It appears that the gold price is setting up to move into a parabolic type advance now.  There was a lot of sideways cause built up since the March 2008 beginning of pattern and now some of that cause is being used up but I suspect it is nowhere near being finished yet.  I would expect at least another three months of upside price movement.

There may be some complex corrections of maybe half a month in duration during the advance, but overall I expect the trend to be persistently up.  It would not make any sense at all for the gold market top top here at this point given the large amount of cause building that occurred since March of 2008.  This is why I believe any top calling at this point is premature.

During the later stages of this type of advance it would seem gold fever can once again come into play causing massive speculation and bidding up of the most speculative stocks.

The 1 dollar and change mining stock I mentioned before TLR Timberline Resources continues to hold it’s 50 day moving average and the chart looks like it wants to get an upside breakout going quite soon.

I am also following a couple pinksheet penny stocks in the gold mining sector that could see massive speculative gains on this gold mania run.  They are CVRG (converge global) and KATX (Kat Exploration).  Both of them trade on the pinksheets and are just a few pennies a share.  CVRG has quite a good chart structure and I would not be surprised to see it test the .445 swing high perhaps by March next year. 

During the entire gold bull market there are going to be lots of opportunities to take advantage of the mass speculation stages of the bull run.  They don’t happen all the time but when they do it is worth it in my opinion to ride along for a while with the speculative fever.

Seasonally, gold should be strong right into the end of this year and I would expect that strength to support the mining sector as well.