The gold and silver stocks have rebounded nicely but have consolidated in
recent weeks. Where is this going and how do we know? Well, a few weeks ago
we publicly said that a major bottom is in. Thus, we believe the trend will
go higher. Beyond belief, we need real confirmation that the sector will continue
higher. Enter moving average analysis. By using a few simple moving averages
we can better understand the current context and get confirmation that the
sector will continue to move higher. GDX, GDXJ and SIL could soon test moving
averages which have been resistance for the past 13 months.
First lets start with GDX. The 150-day moving average provided resistance
at the start of 2013 and then the market declined and remained below its 50-day
moving average for months. The 150-day moving average provided resistance again
after the June bottom. Now that the market has reclaimed the 50-day moving
average which has turned up, it is in position to break above the 150-day moving
average which is flat and no longer declining. Keep an eye on the RSI which
should push above 70 to confirm a breakout. Upon breakout, the medium term
target becomes $31.
There is a similar picture in GDXJ. The market failed at the 150-day moving
average in January 2013 and then remained below the 50-day moving average until
August. The summer rally failed at the still declining 150-day moving average.
Now GDXJ has reclaimed the now rising 50-day moving average and is in position
to breakout above the 150-day moving average. The RSI recently hit 70 and has
remained above 50 during this consolidation. It definitely needs to push above
70 in a breakout scenario. In the breakout scenario the medium target becomes
$51.
For SIL and the silver stocks we use the 200-day moving average. That average
provided support in November 2012 but then resistance in February 2013 and
then for the summer rebound in August 2013. SIL has now reclaimed the 50-day
moving average and is in position to retest the 200-day moving average. Again,
look for the RSI to confirm the breakout. In that scenario, the next resistance
target becomes $16.50.
The near-term analysis is quite simple. The 50-day moving average appears
to have become strong support for these markets which appear ready to test
what has been resistance over the past 13 months. Note how that resistance
(the moving averages) is no longer declining but is flat or flattening. That
illustrates how the downtrend is all but over. A strong close above the moving
averages will all but confirm that the downtrend is over and could more importantly
lead to some very strong moves. GDX at $24 has an upside target of $31. GDXJ
at $37 has an upside target of $51 while SIL at $12.50 has an upside target
of $16.50. Keep an eye on these markets as a breakout above these moving averages
would be quite significant.
Good Luck!
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