Today felt like a short covering rally during the bear market years in the PM complex only in reverse. Days like today can make one think that the rally over the last two months is all she wrote for the new bull market.. Did the baby bull die at birth ? Maybe , but I’ll need to see more proof that the bear market for the precious metals stocks, that ended on January 19th of this year is back.
During a bull market it’s nice to see new highs being made even if it’s for the short to intermediate term time frame. Then to confirm a new uptrend we need to see higher highs and higher lows being made. Since the January 19th low we’ve seen the PM stock indexes making higher highs but we’ve not seen a higher low put in yet because the rally has been so strong. Tonight I would like to show you the new bull market for the GLDX, global explores, using horizontal support and resistance lines. You can apply the same principal to the other precious metals stock indexes like the HUI or the GDX.
During the bear market years it was very rare to see a higher high made on any of the precious metals stock indexes. I believe during the 4 1/2 year bear market there were just a couple occasions when we saw a slightly higher high made before the bears took over and moved the price action lower. That hasn’t been the case since the January 19th low.
Lets start by looking at a daily eight month chart for the GLDX and then work our way back in time to see how the bear market unfolded and how the potential new bull market may unfold over time using just the horizontal support and resistance lines. On this daily chart you can see the two month rally off of the January 19th low that only had a one or two day decline before the bulls took over and rallied the GLDX higher. Finally during the end of February of this year the GLDX has begun to consolidate that first rally phase chopping out a sideways trading range that is still in progress. Note the bullish crossovers of the 20 day ema, 50 day ema that have crossed above the 200 day simple moving average. Now note the two previous highs labeled #1 and #2 which the GLDX took out with no problem at all. Note how the GLDX gapped above both S&R lines and then backtested them from above before the price action moved higher. It’s subtle but it shows resistance reversing its role and turning into support. There is no doubt that this index is overbought but that’s why consolidation patterns form, to relieve the overbought condition. This eight week rally has taken out two previous highs which is bullish.
