In this article, we examine the significant weekly order flow and market structure developments driving GDX price action.
In our most recent GDX Weekly, it was noted that the highest probability path was for price discovery higher, barring failure of 28.60s as support. After a week of balance trade, 28.23s-29.24s, price discovery lower developed this week as the key support, 28.60s, failed. Sell-side continuation developed to 27.77s within the key near support area where buying interest emerged, developing balance, 27.77s-28.67s, ahead of Friday’s close, settling at 27.93s.
03-07 February 2020:
This week’s auction saw price discovery lower in Monday’s auction as last Friday’s late buyers failed to hold the auction. Price discovery lower developed in Monday’s trade, achieving a stopping point, 28.40s, as buying interest emerged. Minor retracement higher developed to 28.69s before buying interest emerged, 28.55s-28.57s, at/near key support into Monday’s close. Monday’s late buyers failed to hold the auction as a gap lower open developed in Tuesday’s trade. Sell-side continuation unfolded, achieving the weekly stopping point low, 27.77s, within the key January 2020 demand area. Buying interest emerged there, 27.79s-27.93s, halting the sell-side sequence.
Price discovery higher began in Tuesday’s trade, continuing into Thursday’s auction, achieving a stopping point, 28.51s, where buying interest emerged, 28.51s-28.43s, testing the sell-side breakdown area into Thursday’s close. Thursday’s late buyers held the auction initially in Friday’s trade as a probe higher developed, achieving the weekly stopping point high, 28.67s. Sell excess developed there, halting the buy-side sequence at/near key resistance (prior support). Price discovery lower ensued to 27.94s, before narrow balance developed, 27.94s-28.15s, ahead of Friday’s close, settling at 27.93s.
This week’s auction saw a sell-side breakdown through key near-term support, 28.60s, before a re-test of this area held and price traded lower to the key near-term demand area, 28s-27.70s. Within the larger context, balance development continues, 31s-25.98s, following 2019’s rally.
Looking ahead, the focus into next week will center upon market response to this week’s support, 27.90s-27.77s. The market continues to seek support, within a corrective phase, in a process called price discovery. Buy-side failure at this cluster would target key demand clusters below, 26.50s-25.98s. Alternatively, sell-side failure to drive price lower from this resistance would target the key supply clusters overhead, 29.02s-29.87s/30.25s-30.95s. From a structural perspective, the highest probability path near-term is sell-side barring failure of 29.20s as support. Within this near-term context, the intermediate term (3-6 month) bias is neutral between 25.98s and 30.96s.
Looking under the hood of GDX, we see that based on one year’s data, Newmont, Barrick, and Franco-Nevada have contributed substantially to the recent rally (357bps, 388bps, and 308bps, respectively). This trio represents approximately 30% of the entire GDX. As such, their price activity is likely to have material effect on the GDX itself.
It is worth noting that breadth, based on the S&P Gold Miners Sector Bullish Percent Index, is now trend lower from the bullish extreme area. Stocks more broadly, as viewed via the NYSE, exhibit a similar halting of increasing bullish breadth. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. Caution remains warranted as market structure is neutral while breadth is remains extreme bullish.
The market structure, order flow, and sentiment posture will provide the empirical evidence needed to observe where asymmetric opportunity resides.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.