After a strong rally at the start of 2022, the VanEck Gold Miners ETF (GDX) topped out in April and spent the next six months locked in a strong downtrend.
By the time gold bottomed out in September, GDX was barely trading above its March 2020 lows – despite a backdrop of runaway inflation and the ongoing war in Ukraine.
However, since hitting those September lows, GDX steadily rose higher. And on January 10, its rally had grown to almost 50%.
But recently, GDX topped out again. So today, we’ll see what’s coming next…
A Previous Pattern Repeated
On the chart below, you can see how GDX peaked and reversed in April 2022. After hitting that high at ‘A,’ it was pretty much a one-way street down…
VanEck Gold Miners ETF (GDX) ETF
Source: eSignal
That reversal in April occurred when the Relative Strength Index (RSI) and the GDX stock price started heading in different directions (diverging red lines).
When buying momentum is declining like this, eventually, that will drag the stock price lower too – just as we saw here.
Then the 10-day moving average (MA – red line) crossed below the 50-day MA (blue line), and both started trending down. That confirmed the next leg down.
And the RSI bearishly remained in the lower half of its range (below the green line) throughout the entire down move.
However, the RSI then formed a ‘V’ from oversold territory (lower grey dashed line) in September (red circle). And GDX started to transition from a downtrend into an upward pattern.
That emerging up move coincided with two bullish technical signals…
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The RSI broke through resistance and gained traction in the upper half of its band.
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The 10-day MA crossed back above the 50-day MA and started to accelerate higher.
Take another look…
VanEck Gold Miners ETF (GDX) ETF
Source: eSignal
But when we looked at GDX on January 10 (red arrow), that strong momentum had pushed the RSI up near overbought territory (upper grey dashed line). Any reversal there would have set GDX up for a fall.
However, it was a repeat of the previous pattern from April 2022 that led GDX to top out at ‘B.’
As you can see, GDX continued to make higher highs (upper orange line) while the RSI was making lower highs (lower orange line). When this happens, we know that a change of direction is in the cards.
So with that pattern causing GDX to reverse, what can we expect from here?
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GDX Is Headed Lower
As you can see, after making those lower highs, the RSI bearishly dropped into the lower half of its range.
Unless it can reverse higher, then this current down move has further to play out. The longer the RSI stays in the lower half of its band, then the longer that down move could be.
I’m also watching our two MAs…
After tracking above the longer-term 50-day MA, the 10-day MA has recently turned down. And it’s closing in quickly on the 50-day MA.
If the 10-day MA crosses sharply below the 50-day MA and they both trend down, then that’ll add further weight to GDX’s down move.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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