GDX: Gold Miners Are Starting to Shine

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After being left for dead by many investors, gold miners are starting to rise. While the potential bottom is still in its infant stages yesterday’s 4.7% pop in Market Vectors Gold Miners ETF (GDX) certainly helped the resurrection along. The one-day surge was likely spurred by a respectable 2.3% jump in gold prices.

A closer inspection of the GDX chart reveal a few promising developments. First, since bottoming in early November the popular gold miners ETF has formed a series of higher pivot lows, reflecting an increasing aggressiveness by dip buyers.

Instead of waiting for GDX to fall to new lows before stepping to the plate, the bulls are buying quicker. If this behavior continues, the fund may enter a full-fledged — dare I say it — uptrend.

Yet another bullish victory of sorts is that GDX has advanced long enough for the 20-day moving average to start rising for the first time since June. If the price of GDX can successfully climb above the 50-day moving average and, more importantly short-term resistance around $20.40, I’d say the bottoming process is complete.

GDX: Gold Miners Starting to Shine
Source: MachTrader

How to Trade the GDX ETF

If the recent action in gold miners has you wanting to join the bulls for a spell, consider entering a bull call spread. The Jan $20-$22 call spread can be purchased for 60 cents and consists of buying the Jan $20 call while selling the Jan $22 call simultaneously. The risk is limited to the initial 60 cents and will be lost if GDX sits below $20 at January expiration

The potential reward is limited to the distance between strikes minus the initial debit, or $1.40. To capture the entire reward, GDX would need to climb above $22 in the coming weeks.

Traders seeking more confirmation of the bottom in gold miners before pulling the trigger might consider waiting for GDX to break resistance at $20.40.

As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/gold-miners-gdx-etf/.

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