Thursday, October 30, 2008

GDX has bounced sharply from a low well above the $14.24 target projected a while back in the chat room. The target is still valid and will remain so unless 38.73 is exceeded first. However, the midpoint pivot tied to the target lies at 26.48, and that is a logical price objective for the current rally. If the target is achieved, it would represent a nearly 50% retracement of the downdraft from late September's high, 38.73. The fact that the most recent bottom failed by 1.59 to achieve the target is an incipiently bullish sign, but we'll be better able to judge if and when GDX encounters a lesser midpoint resistance at 22.05. If it is easily brushed aside, that would affirm the likelihood of a move to 26.48.

The Gold Bugs Index did everything we asked of it and more yesterday, justifying the optimism we'd expressed at the outset of the move. Immediate upside potential is to 223.22, a Hidden Pivot, but HUI will need to get past its sibling midpoint at 203.74 first. Applying the same criteria we used in today's analysis of the Gold Miners ETF (GDX) yields an upside target of 246.98, so we'll make that our minimum expectation for the next 10-12 days. If it is to remain viable, minor-trend pullbacks should not exceed their 'D' targets -- should in fact go no farther than their respective c-d midpoints.

We took a good look at this vehicle during yesterday's tutorial session and concluded that the sharp drop from Tuesday's 87.88 high is a correction, not a major trend change. There are two reasons to infer this is so: 1) the high exceeded a clear target on the weekly chart by more than 3 points, and 2) it also exceeded some daunting look-=to-the-left peaks recorded back on 2006. Rallies rarely achieve such feats only to die ignominiously, so we'll assume there is more upside to come. That said, the pullback looks like it has farther to go, since it continues to exceed 'D' targets on the hourly chart. The nearest one with analytical value is 83.33, so we'll make that our minimum objective for now. And easy move through it would spell more weakness over the near term.

Don't get your hopes too high if you went home Wednesday thinking the selloff would continue. In fact, the futures were chomping at the bit in night trading, threatening to run up to a midpoint resistance at 964.00 that would fall 7 points shy of yesterday's high. That would all but clinch a test of the peak, and if it's swept aside, the futures could be revving up for a shot at its 'D' sibling, 1013.50.

In mid-evening trading, the futures have speared a 767.20 midpoint resistance, suggesting they are game for a shot at its 'D' sibling, 786.80, at least. Just one minor obstacle lies along the way: 777.40, a minor Hidden Pivot. If it's breached by more than three ticks, the remaining 9 points to the target should be a cruise. _______ UPDATE: The futures made it no higher than 778.30 overnight -- a negative sign for perhaps the next 2-3 days. Another hint of further weakness to come is that the pullback has exceeded the 767.20 midpoint. A close below it would add to the tired picture.