Gold and Gold Stocks See More Selling

Gold Stock Technician (02/25/2009)
Since last week, both gold and the gold stocks have rolled over to the downside with the gold price putting in a spike top and now the entire sector beginning to sell off in earnest. Prices have now broken down from a small distribution top and through today's close are being fully confirmed by strong downside momentum on MACD, which is making new lows in tandem with price.

In our view, GDX is now targeting the $27 to $28 zone, the area of the January 14th lows. Elsewhere, today was the first day in the last 51 days when the GST Medium Term A/D Oscillator moved below +15 with a close of +10.12, down from +18.73 on Tuesday, and of course that brings the official time span to an end at a record tying 51 days (the last time and only time that happened being the streak, which ended on 3/27/89.

We believe that before this down trend is complete, all of our short term indicators and likely several medium term gauges will move to oversold levels, implying that we should see several more weeks of selling. Without pre-empting the actual data, we believe that we will probably see a fast decline toward the mid-January lows, then a sideways holding action in that area for around two weeks, and then a second decline which could bring GDX down into the low $20s within a few weeks time.

In our view, it is likely that by early April, we could see another medium term BUY signal, and we might even get a shorter term tradable buy signal in the next 5 to 8 days. For now, for both gold and the gold stocks, the odds are quite high that more selling will be seen (with the usual intervening bounces) over the balance of the next few days, with a better take on where the bottom might be likely coming into view by the early-to-middle part of next week. For now, we have no changes in our view on the gold stocks, which is to remain largely in cash, and stand aside as prices are expected to decline still further.

Turning to the near term trend for gold, we see that after closely approaching the $100 area (with April gold actually moving slightly above $1,000 last week), GLD has reversed to the downside. From here, we would not be surprised to see the decline continue over the next few days moving prices down to the next support zone in the $85 to $86 zone.

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