May 06. Waiting for Gold Miners to shine again.

Recently the Gold Miners Bullish Percent Index ($BPGDM) - the breadth indicator of the Gold Miners ETF (GDX) - fell below 20% signalling about oversold conditions in GDX. In October-November and December-January such low readings in $BPGDX led to a tradable oversold bounce (see my trades # 3,4). Building positive divergences in MACD and RSI from April are increasing chances of an oversold bounce in GDX again. How long and strong it's going to be remains unclear though.

This time instead of watching GDX for a possible bounce I keep on my radar its junior cousin - the Market Vectors Junior Gold Miners ETF (GDXJ). The reason GDXJ looks more attractive to me for a possible long trade is that GDXJ demonstrates the relative strength to GDX from late April (upper indicator window). Besides, at the time GDX is making a new low, GDXJ holds above the April low. This makes me believe that a possible bounce will be stronger in GDXJ.

Of course, the indicator readings and low prices are not a reason to go long right now. Low prices may stay low for indefinite time. I am watching the development of an interesting pattern on the GDXJ medium-term P&F chart. It looks like a Bearish Pattern Reversed is in making with consecutive lower highs and lower lows. The formation of this pattern is confirmed only when a buy signal is issued. In case of GDXJ a buy signal at this stage of the pattern development would be issued if the price clears the 24 level.