Time To Buy The Gold Miners ETF? [Market Vectors Junior Gold Miners ETF, SPDR Gold Trust (ETF)]

buyers and sellersMorpheus Trading:  I grew up in York, Pennsylvania, which is only about a thirty minute drive to Hershey, home of America’s favorite chocolates.

As a teenager, I used to love visiting Hersheypark, a pretty cool amusement park on the Hershey grounds, specifically to ride the roller coasters.

As a middle-aged adult with responsibilities, I rarely get the pleasure to visit Hersheypark these days, but lately I’ve been getting plenty of thrills and chills from the stock market alone.

Lately, the S&P 500 Index has been a roller coaster with lots of hills and valleys, but ultimately looping back around to the starting point (though may soon break out above the range if current price holds).

Although day to day volatility has been pretty substantial in the S&P 500, the benchmark index has merely been oscillating up and down in a wide, sideways range over the course of several months:

$SPY S&P 500 daily chart

 

When stocks are so indecisive on a day to day basis, it may be a decent market environment for daytraders who exit all their positions by every day’s close.

But it has admittedly been a challenging environment for trend traders who typically hold stocks for weeks to months.

Gold – Low-Correlation Trading Solution

Without even looking at a chart, I can tell you one of the best things about trading a Gold ETF or the spot gold futures is that the shiny yellow metal is typically not closely tied to the day to day movement in the stock market.

As such, the challenge of the roller coast stock charts becomes a moot point and it only comes down to a matter of making sure gold is sitting a technically buy-able level.

Is it?

Right now, select gold ETFs are indeed presenting low-risk buy entry points, but the patterns will soon lose their bullishness IF gold shares do not catch a bid and start rallying again within the next few days.

The two main ETFs we trade are SPDR Gold Trust ($GLD), which tracks the price of spot gold futures, and Junior Gold Miners ($GDXJ), which is comprised of a basket of smaller gold mining stocks.

Between the two, $GDXJ has clearly been showing relative strength to $GLD, so the Junior Gold Miners ETF has better odds of rallying to a new swing high before $GLD. Take a look:

150209GDXJ

 

 

In late December, $GDXJ made a sharp move off the lows that lasted three weeks.

Since peaking in late January, the ETF has been in pullback mode, and is now holding above its 50-day moving average (teal line), but stuck just below resistance of its 20-day exponential moving average (beige line).

After $GDXJ pops back above its 20-day EMA (above the $27.60 area), buyers should step in due to break of key moving average resistance, as well as a break of the downtrend line from the January high.

Don’t Cross That Line

The first pullback to a rising 50-day moving average after a couple months of bottoming action is bullish, and typically presents a low-risk buy entry point.

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