It is not a stretch to say that investors not residing in caves or under large rocks by now know that being long gold miners equities and the corresponding exchange traded funds has recently been an account-draining trade.
This is how bad things have gotten in the precious metals complex: On Wednesday, just over 40 ETFs hit new all-time lows. Of that group, roughly half were precious metals plays and of that group, neary 10 were either leveraged or traditional long gold and silver miners ETFs. [Another Day at the Office for Gold Miners ETFs]
On Wednesday, the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) touched another all-time low, sinking nearly 7%. The Market Vectors Gold Miners ETF (NYSEArca: GDX) was nothing to write about, either, as the largest gold miners ETF tumbled 3.5% on heavy volume after hitting a new earlier in the day.
GDX and GDXJ are now down 21.5% and 30.5%, respectively, over the past month. With the price of gold continuing to tumble, fear is growing that some of the companies held by these ETFs will see profits crimped and debt burdens worsened, particularly if spot gold falls below $1,100 per ounce. [Mounting Problems for Miners ETFs]
Those factors and others make a bull case for the miners tricky at best, but amid the current tumult, some technicians see potential.
“With GDX set to gap-down below the lows from the last three days, and thus become even more extremely oversold, we think a countertrend LONG trade is setting up,” said MKM Partners Chief Technician Jonathan Krinsky in a noted posted by Chris Dieterich of Barron’s.
Krinsky notes that heading into Wednesday, GDX had closed below its lower Bollinger Band for five straight days, a dubious feat committed by the ETF just two other times. “After both previous occurrences (2011 and 2013), the GDX traded higher both five and ten days later,” Barron’s reports, citing Krinsky.