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Should You Invest In This Unloved Sector?

|Includes: ABX, AU, VanEck Vectors Gold Miners ETF (GDX), GDXJ, GG

Putting his contrarian hat on, MoneyShow's Tom Aspray wonders whether it might make sense now to jump into this sector that has undergone significant corrections since its all-time high in 2011.

It looks as though the earnings season may be much better than the dour forecasts from analysts just a month ago. Though only 21% have reported earnings as of Tuesday, 67% of the companies have beaten estimates. The recent earnings have clearly been supportive for the market.

Economic data is also showing some improvement with the PMI Manufacturing Index and New Home Sales out later today. Big earnings announcements are also slated for release after the close, and though the market internals continue to be strong, the major averages do look over-extended on a short-term basis as the S&P 500 is about 20 points above its 20-day EMA at 1859.

One of the surprises, so far, this year has been the strength of the utilities as the Sector Select SPDR Utilities (XLU) is up over 12% YTD. They were not highly recommended at the end of 2013 and their performance reinforces the merits of having a small exposure to various sectors even if they are not currently in favor.

This is a good argument for the gold mining stocks as even though the Market Vectors Gold Miners ETF (GDX) has been up 12.6% YTD, it has corrected sharply from its highs. Though some of the individual gold miners are acting better than others, the ETFs are the best bet for a small part of your portfolio, but which one?

 


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Chart Analysis: The Market Vectors Gold Miners ETF (GDX) has just 33 stocks with 67% in the top ten holdings including 14% in Barrick Gold (ABX) and 13.4% in Goldcorp, Inc. (GG).

  • GDX spiked to a new high at $28.03 on March 14, but then reversed to the downside.
  • At Monday's low of $23.04, it was down 17.8% from its high.
  • The weekly chart shows that it has been trading below the 20-week EMA at $24.50 for the past five weeks.
  • The quarterly pivot is at $24.30 with the early April high at $25.34.
  • The weekly on-balance volume (OBV) did form a bullish divergence at the December lows, line c.
  • This divergence was confirmed by the strong move through resistance, line b, in the middle of February.
  • The OBV is just retesting the breakout level and is still well above its rising WMA.
  • On the weekly chart, there is more important resistance at $31.35 with the 38.2% Fibonacci retracement resistance at $33.17.

The daily chart of the Market Vectors Gold Miners ETF (GDX) shows that the minor 61.8% retracement support at $23.21 was slightly violated.

  • There is additional support at $22.60 with the daily starc- band at $22.54.
  • The daily OBV also broke out to the upside in February as resistance at line d was overcome.
  • The OBV is still holding above this level as the volume has been declining over the past few weeks.
  • On the early April rally, the daily OBV was stronger than prices, which is a positive sign.
  • The monthly pivot for May is tentatively at $24.06 with the daily starc+ band at $25.19.

NEXT PAGE: How Do the Junior Miners Stack Up?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.