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Correction in Gold and Silver Stocks Nearing End

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We are 19 days into the correction and we see some stealth signs of strength.

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We expected a correction after the gold and silver shares ran into predictable resistance that coincided with October seasonal resistance. That was predictable. Now we are 19 days into the correction and we see some stealth signs of strength and signs of the correction nearing its end.

Let's take a quick look at Market Vectors Gold Miners ETF (NYSEARCA:GDX) before we get to the analysis.




There are numerous positive elements to the current technical makeup of GDX. First, there is the price action. The market has very strong support at $48 to $49. It first bottomed at $50.90 and then at $50.81 on Monday. Since then, GDX pushed higher to $53. Secondly, note that the RSI bottomed at 50. In a bull trend, the RSI will bottom at 40 and not the typical 30. However, in a very strong bull trend, the RSI can bottom at 50. Third, the GDX vs. GLD ratio has shown strength in the past few days and has shown little to no weakness during this correction. Finally, note the accumulation line at the bottom of the chart. It barely dipped after surging for several months.

Next, let's take a look at the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ). Do you notice the similarities to GDX?




GDXJ has strong support at $23 but managed to bottom twice at $23. Meanwhile, the RSI indicator has remained above 50 and the GDXJ vs. GLD ratio has remained steady during the correction. Once we have confirmation that the correction is complete, we'd target $30 in the near term. A close below $23 would indicate that the correction has further to go.
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No positions in stocks mentioned.

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