Though it’s not too overbought it has surged over 30% in about five weeks. The index stopped at the 400-day moving average in March but has advanced above it in recent weeks. On Thursday the index closed at 418. The 400-day moving average is at 371. That is an 11% decline from Thursday’s close. The 50% retracement of the recent advance is at 374.
We know that the miners are very close to a big breakout while Gold could move lower before it moves a lot higher. Back in 2001, the gold stocks bottomed more than four months ahead of Gold. After Gold confirmed its bottom, the miners surged 68% in two months. While the miners are close to a major breakout, perhaps it won’t happen until Gold is ready to rise. The miners could retrace half or even 62% of the recent gains and remain in a strong technical position. That could coincide with weakness in Gold which has formed a bearish reversal on the weekly chart.
Another point is the majority of important breakouts in the miners from 2000 to 2010 occurred in September. Last week we mentioned taking advantage of dips. Now we have one and it could be on the larger side. Taking advantage of upcoming weakness could be critical as it would be in advance of potentially the most important breakout in the miners in many years.
This article is brought to you courtesy of Jordan Roy-Byrne From The Daily Gold.