Rupesh
Short

More Weakness Ahead in Gold Stocks

FX:XAUUSD   Gold Spot / U.S. Dollar
105 0 4
The gold             stocks continue to correct their epic +150% rebound that began in January and ran into the summer. Last week it was the poor relative strength in the miners that hinted the correction had more to go in both time and price. This week, it was the miners failure at a confluence of resistance, even with Gold             trading above $1300, that argued for more weakness ahead. While most of the damage has already been done, our work argues for more weakness before a buying opportunity.

In the daily candle chart below, you can see how this week the miners failed at a confluence of resistance. Over the past four trading days the miners tested but failed at their 50-day moving averages. In addition, GDX             failed at $26, which was previous support. Meanwhile, GDXJ             failed at $43 which was also previous support.

The weekly charts give a cleaner look at the aforementioned failure as well as what should be strong support. Note how GDX             tested and failed at $26 and is likely to close the week below weekly resistance at $25. It has downside support at $21-$22. GDXJ             tested $43 and will close the week well below that resistance. It has downside support at $33-$35.
The gold             stocks are ripe for further selling given recent price action and their weak relative strength . Nevertheless, the market has almost priced in the Fed rate hike (79% probability as of yesterday) and another round of weakness in the gold             stocks would likely lead to a buying opportunity and strong rebound. As we noted last week, this correction could end up like the 2002 correction in terms of price and the 2001 correction in terms of time. Our downside and buy targets are GDX             $21-$22 and GDXJ             $33-$35.
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