The Market Vectors Gold Miners ETF (NYSEArca: GDX), the largest and most heavily traded gold mining ETF, and its rivals cannot take much more bad news.
In just the past week, GDX has lost almost 8%, touching a series of five-year lows in the process. Over the past month, GDX is off nearly 18%, but is far from the only offender in the gold mining ETF space. The iShares MSCI Global Gold Miners ETF (NYSEArca: RING) is down 17.3% over the same time while the Global X Pure Gold Miners ETF (NYSEArca: GGGG) has tumbled 21.7% in the past 30 days. [Gold Mining ETFs not so Golden]
Even with GDX’s recent weakness, now may not be the time for investors to short the ETF or run out to buy the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST).
Deron Wagner of Morpheus Trading Group advises waiting for GDX to test resistance, a safe strategy, “especially when the bounce produces some sort of bearish reversal candle for entry. In the case of GDX, a short-term bounce into resistance of the declining 20-day or 50-day moving average would be ideal.”
Being patient with GDX from the short side or DUST from the long side could pay dividends because, as Wagner noted, one sell-off after a test of resistance could take GDX to its 2008 lows around $18. The ETF closed at $21.66 Tuesday, just over 20% above its all-time low set in October 2008.
With gold futures struggling to stay above $1,200 an ounce and speculation rising that should bullion spend too much time below that psychologically important level that miners will pare output and dividends, sentiment surrounding mining ETFs and their holdings is glum. [Ominous Levels for Gold ETFs]
The $20 area should also be monitored closely on GDX because the ETF has not closed below that area since the fourth quarter of 2008.
DUST is up nearly 68% in just the past month.
Direxion Daily Gold Miners Bear 3X Shares
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.