A mortal sin of any trader is the lack of patience. Patience is indeed a virtue when it comes to trading. In fact, the great thing about trading is that you get to pick your spot. You don't have to play unless you want to. You can simply wait for a better trade or you can move to another trade if the one you want to buy or sell simply isn't acting right.
In the gold market, we have seen a precipitous decline off the highs and despite a stock market that has been working its way higher the shares of gold mining companies have taken a hit in sympathy with gold. As a result, the desire to get involved in these names is great. So is this the buying opportunity?
Well, like always, it depends on your time frame. Since my time frame in the gold market is long term, then my take is that the time isn't right yet. If you are looking at a different time frame and are nimble, then you could come to a different conclusion. Let's work through the charts to see why.
Starting with the long-term chart of the
Market Vectors Gold Miners ETF
, we see a chart that is
although some have taken a recent beating in this ETF.
The problem is that the beating is probably not over quite yet. Despite this, there is very promising long-term action in this chart. Besides being confirmed bullish, prices didn't touch the highs from early 2008 and thus there isn't a failure at the top.
Another positive is that prices remain within the nice angled channel lines that have held since the beginning of the year.
Volume characteristics are fine and there is a well-defined support area from $37.50 to $42.50. That's where you need to be thinking about long-term buys -- not here at $47.
Moving to the intermediate-term weekly chart, there we find some signals we haven't talked about before: higher volume declines with fast price destruction. The GDX has declined more than 20% in a month and volume has swollen.
The good part of that story is that volume has increased without the test of a swing low; that is crucial. It's at the swing point that the market tells its story. It has told us the story that volume is present at the top. That's a magnet down the road.
It also has told us that this decline and subsequent consolidation will probably take longer than most would expect. Looking at the chart, we could see the GDX chop around with 15% swings for months as a result of what has just occurred.
For a trader, that's great if your timing is any good. For an investor, it will be like watching paint dry on a cold day. Every time you think it is done, you reach up and touch it to only find that it's not quite dry yet.
Finally, it's the daily chart that tells us to be careful if you want to be long and think it's a good time to jump in.
I've drawn the AB=CD pattern that is now confirmed. That takes the GDX right into the support area that you would expect as shown on the chart.
Resistance is also where you would expect, right at the lows of the high volume spike lower on Dec. 4.
This rally we witnessed Wednesday is most likely a suckers' rally and isn't something you want to chase. Odds are it will pull in new money for those hopefuls who buy it, only to flush most of their money down the drain on the next charge lower. At that point, they won't want to buy and that will, of course, be the place that they should.
Have a great Christmas folks. And until next time, keep trading the charts!
At the time of publication, Little was short Market Vectors Gold Miners ETF
L.A. Little is an author, professional trader and money manager who writes daily on
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