Jordan Roy-Byrne: The gold and silver stocks have rebounded nicely but have consolidated in recent weeks. Where is this going and how do we know? Well, a few weeks ago we publicly said that a major bottom is in. Thus, we believe the trend will go higher. Beyond belief, we need real confirmation that the sector will continue higher. Enter moving average analysis. By using a few simple moving averages we can better understand the current context and get confirmation that the sector will continue to move higher. GDX, GDXJ and SIL could soon test moving averages which have been resistance for the past 13 months.
First lets start with GDX. The 150-day moving average provided resistance at the start of 2013 and then the market declined and remained below its 50-day moving average for months. The 150-day moving average provided resistance again after the June bottom. Now that the market has reclaimed the 50-day moving average which has turned up, it is in position to break above the 150-day moving average which is flat and no longer declining. Keep an eye on the RSI which should push above 70 to confirm a breakout. Upon breakout, the medium term target becomes $31.
There is a similar picture in GDXJ. The market failed at the 150-day moving average in January 2013 and then remained below the 50-day moving average until August. The summer rally failed at the still declining 150-day moving average. Now GDXJ has reclaimed the now rising 50-day moving average and is in position to breakout above the 150-day moving average.