Since mid-September volatility has been on the rise.

That volatility intensified last month when war broke out in the Middle East.

The increased uncertainty led to commodities like oil and gas breaking higher. And one of the biggest movers was gold…

The VanEck Gold Miners ETF (GDX), an ETF that invests in the world’s largest gold miners, rose 12% in just a couple of weeks.

And it gained over 17% since its trough at the start of last month.

But GDX slid since hitting that recent high. So today I want to see what’s coming next for this highly tradeable commodity…

Two Clear Trends

On the chart of GDX below, the 50-day moving average (MA, blue line) shows two distinct trends…

You’ll see GDX’s rise until it peaked in early May at “A” on the left side of the chart. And on the right, GDX rolled over and trended down.

VanEck Gold Miners ETF (GDX)

Source: eSignal

The shorter-term 10-day MA (red line) also shows plenty of countermoves against these prevailing trends.

These reversals coincided with a clear switch in momentum as shown by the relative strength index (RSI)…

For example, look at when GDX retraced from late January through to early March.

This move corresponded with the RSI pulling back from overbought to oversold territory (upper to lower gray dashed lines).

You can see this more recently in the counter-rallies in July and August against GDX’s downtrend.

We checked out GDX about a month ago (red arrow). We noted then that the counter-rallies coincided with the RSI forming a “V” and rising out of oversold territory.

Soon after I wrote that piece, GDX rallied in a clear repeat of those previous patterns.

Yet today I want to focus on GDX’s move after that…

When the rally got underway, the RSI formed a “V” and climbed right up through resistance (green line).

The 10-day MA crossing above the 50-day MA at a sharp angle confirmed the upmove.

But now the 10-day MA has started to flatten out.

Take another look:

VanEck Gold Miners ETF (GDX)

Source: eSignal

The RSI has bullishly broken into the upper half of its range. Yet it has recently pulled back and is once again testing support (orange circle).

Although that level has held for now, GDX’s rally is hanging in the balance.

So, what am I looking for from here?

Buyers Need to Regain the Upper Hand

After an initial sharp rally like GDX had last month, it’s quite common for a stock to go through a period of consolidation. (This is a holding pattern that happens when a stock is trading within a limited price range, waiting for a breakout.)

This often happens because sellers bank their profits. And initially, it can overwhelm buyers who are still trying to get in on the trade.

But once those sellers finish, the buyers often regain the upper hand.

And that’s what I’ll be looking for from here.

The next test for GDX’s rally is for the RSI to remain in its upper range. The longer it can stay here, the stronger the next leg of GDX’s rally could be.

Beyond that, we’d then look for the 10-day MA to accelerate above the 50-day MA to confirm that GDX is resuming its rally.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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