In a previous article, I discussed the increasing size of each rebound attempt the Market Vectors Junior Gold Miners (GDXJ) makes. GDXJ is on its fourth major rebound in the last 2-3 years, but this most recent rebound appears to be to be struggling to provide the strength to beat the previous rebound as the last two rebounds have done.
The most recent rebound of 55% was quite close to the previous of 59%, it just needed another couple percent from its high of $44.83 to beat it. But instead, it pulled back, most likely due to profit taking, to where it currently sits at the lower end of a consolidation zone that ranges between $40 and $44.
It will be interesting to see what happens over the next few months. If the miners continue to drop back down even a little further, we’ll probably see more shorting come in to enhance the drop even further. If that happens, the sector will have continued the pattern of lower highs. And if there’s enough technical traders pulling their weight, they’ll likely continue to short the stock down to a new lower low (orange arrow) as the technical trend indicates should happen.
I don’t trade on technicals to try and beat the market, but I do like to know what the technical traders are thinking to help me determine where we are in a sectors momentum. Currently we are still in a long term decline. But the recent consolidation shows, the sector is fighting between breaking out to its first higher high (starting an uptrend) and dropping back down to create a new lower low (continuing the long term decline).
Implementing my strategy that I’ve been developing for years to consistently produce long term gains, I had a major purchase that was very close to the most recent bottom near the end of last year. And based on that strategy I won’t be purchasing any more of this fund, unless the fund drops below that previous buy to where my next minor buy is scheduled.
I’ll be amazed if the miners do drop down to newer lows, but I’ve already been amazed over the last couple years as they have done so a couple times. My strategy doesn’t follow my conjecture or amazement, it just continues, without emotional involvement (which is tough), as I continue to follow the rules I’ve created to purchase in a long term decline that allows me to develop long term profits.