NEW YORK (Real Money) -- I'm going to keep the bearish side simple here today. I was long the miners, but I simply cannot be any longer based on this action. I've moved to the sidelines here as the action over the last three days, specifically the last two, is very concerning.
The Market Vector Gold Miners (GDX) began the week looking ready to breakout out again. This one has always been the bridesmaid but never the bride. Now, I'm starting to think it is merely getting a seat at the single's table with all the cousins no one in the family likes.
Tuesday's pullback was fine. It looked healthy. A pause near last week's highs and just below resistance, but yesterday was disconcerting.
In one day, we lost the eight-day and 21-day simple moving averages. This morning we gapped lower and now find ourselves below support of the bullish channel which has formed from the March lows. It's possible this channel is nothing more than a very big bear flag simply consolidating the drop from the highs of the year. Personally, I don't buy that one. The bounce has been far too high for far too long, but what I do see here is a security that is an absolute sell into that resistance line of this current price channel.
Furthermore, the best risk-reward buy seems to be one to two days after the up move off the support channel. Unfortunately, we are threatening to close below that price support channel today, so I'm unsure where that leaves us. The vortex indicator is flipping bearish while the Relative Strength Index is dropping under 50 while the slow stochastics is already bearish. Price, momentum and trend are breaking at the same time, which is just playing with fire as a long.
Could we bounce? Sure. The day isn't over and GDX could certainly get over the support levels of the price channel. Is that a risk I'm willing to take? I'll answer that three ways: No, no and heck no. While I do think the downside target here is only another $1 to $1.50 lower, there is just nothing bullish about this chart now.
Resistance is now in place at $19.50, plus we have a shorter term resistance line at $19.80 and then more at $21. The best play on the long side appears to be getting in on a move back over $19.80 with a target of $21 and a stop around $19.25, but we aren't there now.
On the short side, I would stay with puts, but a put buyer here could stick a stop around $20.25. I'd prefer to see one more day before committing to anything on the short side, but as a former long, I feel more comfortable on the sidelines here taking a loss and waiting for more information before doing anything more.
Editor's Note: This article was originally published at 11:11 a.m. EDT on Real Money on May 7.