Lets take a close at the Gold miners ETF GDX. Lets start by looking at gold's price action. Today (3/2411) gold tried to break through the $1,440 area of resistance, but sellers did step in pushing it back underneath resistance, giving us a failed break out at this point and confirming the importance of the $1,440 resistance area. Over the next couple of days to weeks we are going to continue to monitor gold to see if we do get a confirmed break over $1,440 area with good volume which would increase the probability that gold trades to the $1,500 to $1,600 area. If the break out does not take place the most probable out come is that we continue in it's current side ways trend. We will be looking at candle stick formations and stochastic to give us a technical probability of which moves has the higher degree of probability.
Lets look at the technical picture for GDX, it's trend, key support and resistance areas, and it's options. GDX has dollar wide options with good open interest, which makes it a good candidate for both debit spreads & credit spreads. Currently it's implied volatility is in the 30 range, which is about average over the last four months. GDX has been in it's current uptrend since 12/08, and has been in a consolidation phase within that uptrend over the last 4 to 5 months. Currently we are trading into a downward resistance line that goes back to 12/07/10, was tested on 3/2/11 to 3/8/11, and we came into that level today and looked like it was going to break out along with gold. As sellers push back the price on gold, GDX also followed, it had reached a high of $61.37 but closed at $59.99 almost at the low of the day. From the charts you can also see that there is strong resistance from $61 to $62 area.
A break above that area with gold breaking above the $1,440 area would provide us with a probability that GDX will resume it's uptrend and the next target for GDX would be the $69 area. That would be about a 10% move higher from the $62 price level.
If it fails to break out and starts to pull back there is support at the $57.50 to $55 area. There is price consolidation, a long-term up trend line, and it's 200 MA all along the price area..
No matter what scenario plays out GDX is a good candidate for both debit or credit spreads. Right now a at the money dollar wide credit spread pays $45, with a maximum loss of $55, and that’s the April 11 option chain which has 21 days till expiration. For both a bull put or a bear call spread. Unfortunately this trade is a 50/50 trade at the moment with no edge. At this point we need to be patient and wait for price action to give us a good trade set up & entry point.