Excerpted from Subscriber Update
The gold stocks are in a correction which could turn out to be the largest and deepest since the crash of 2008. Now is not the time to panic but to evaluate where the gold stocks may go and where buying will come in to support the market. We utilize moving averages, Fibonacci retirements, Bollinger bands and price action to get a good idea of where the market may bottom. Additionally, we always consult sentiment polls, fund flows and options activity.
Starting with the large caps (GDX) here is what we see.
The lower 200-day Bollinger band marked bottoms in 2004, 2005, 2006 and 2007. It is currently at $49.99 and rising. The 400-day MA (currently at $52.26) marked key support points in 2003, 2006, 2008 and 2010.
The bullish percent index is at 43% which is oversold but not extremely oversold. There is a confluence of support in the low $50s. The 38% retracement from the 2008 low is at $46. That is our realistic worst-case scenario.
Meanwhile, GDXJ (the larger juniors) closed Friday at $34.69. Our chart below shows a confluence of support at $31-$32. The 200-day lower Bollinger band is at $26 but will reach $30 before the end of June.
To sum it up, the gold stocks are oversold and nearing that very or extreme oversold condition. This is a volatile sector. Use the volatility to your advantage. During corrections like these, you must wait for a very oversold condition rather than just a plain oversold condition. Not only do you protect yourself but you give yourself the chance to profit quickly as the gold stocks tend to rebound very quickly when reaching a very oversold state.
Jordan Roy-Byrne, CMT