Miners Could Be Setting Up For A Big Hit Into Year End

As I read through the blogs and public articles on miners and the GDX, it has become quite evident that many have now turned either bearish or completely indifferent to this complex. In fact, it seems as though the number of hits being seen in the Seeking Alpha metals section has dropped dramatically over the last year.

It seems most are looking for the metals to just drop from right here for a myriad of reasons. (Well, that is, other than those who only see the word “UP” when you mention the word “gold” to them). For those who usually place their expectation upon the immediate direction of the complex, it would seem that the recent drop in price has them expecting it will immediately continue to drop. Isn’t linear analysis wonderful? So, it would make sense, at least from a sentiment standpoint, that we need to get a number of them believing that the market is about to rally strongly, which will then trigger our trap door.

While my perspective is also a bit bearish in the intermediate-term, I think we can be setting up a bit of a surprise in the short-term.

Price Pattern Sentiment Indications And Upcoming Expectations

So, as many are expecting continuation of the weakness in the GDX and mining stocks, I think we could be setting up more of a rally before the true weakness takes hold later this year. 

As long as the GDX remains over the lows struck in early October, I think the GDX can approach the 24.50-25 region. While there is still some potential that it can stretch as high as the 26 region, if it is unable to reach that high on the next rally, and then breaks back down below the October lows, that opens the door to a 30% decline in the GDX. 

Moreover, as I look to ABX, a leading stock in the GDX, as long as it remains below 18.35 on its next rally, and then breaks down below the lows we are currently striking, it opens a trap door for us to drop towards the 11 region.  This supports the estimated 30% drop I would expect in GDX, again, should we be unable to reach the 26 region in GDX or over 18.35 in ABX on the next rally.

See charts illustrating the wave counts on the GDX.