Trade of the day: GDX

Often times, aceloewgold focuses on the gold and Fx markets. There is an interesting medium-term trade emerging within the gold-mining subsector.

In analyzing GDX (gold-mining ETF), we can clearly see that shares have convincingly broken-out of a 5-month bear market that began in the back-half of 2016. Comparable to the start of last year, gold and GDX have come storming out of the gates once again and are outperforming nearly all other asset-classes YTD.

On the heels of this breakout around the $22 threshold, GDX now finds itself in a very healthy upward trading channel, currently battling through a both psychological and technical resistance/support level of ~$25.

The battle is set – to close above this key level as many times as possible to continue the breakout. Right now, GDX has closed above $25 four-out-of-the-eight last trading days. It’s a tug-of-war, that will eventually produce a verdict.

Watch carefully for a close above $25 to close out this trading week.

With inflation ramping up, the U.S. dollar coming off it’s highs (trend reversal), geopolitical uncertainty increasing, and market complacency at staggering levels right now (no volatility) with the markets sitting at all-time highs, the gold market and this particular GDX trade is increasingly more attractive (great risk/reward profile).

From a technical standpoint, if we have a concrete close this week above $25, GDX should continue its upward trading channel trajectory all the way to $29.

Why $29?

On August 24, 2016, GDX gapped down from $29.02 to $26.97, a miserable drop of -7% in one bloodbath of a day. In many ways, this solidified the 5-month bear market that ensued. On that fateful day, shares of GDX were never able to re-touch $29, only barely climbing towards a high of $28.65. This represents a roughly $0.35 trading gap.

Technicians know that all gaps MUST BE FILLED.

With the conditions now ripe, it does appear that we’re on the move towards filling that $0.35 technical gap. Trading within the current upward trading channel, GDX has a potential +15% move built into its current trading behavior.

+15% is a healthy and attractive medium-term trade in today’s rocky climate, but can also be leveraged for even bigger returns with the corresponding and heavily traded (great volume) options market. For options traders out there,  the June17 29 call options may be a great play.

*The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.