If you look at the Very Long Term GDX chart below and compare the build-ups of candles at the major top in 2011 and the one in 2020-2021, you would notice that the current one is more adverse. It might mean that a correction that started in August 2020 is just warming up and a real price decline is still ahead of us. Let’s explore the hypothesis from the perspectives of candles, technical indicators, and Elliott Waves.
In the previous Long Term Forecast on December 14, 2020 I projected that the price could possibly fall to 11-13 by March-May. Since the last update, the stock has developed more signs that further supported my views and I would like to discuss some of them.
CANDLES & TECHNICAL INDICATORS
In December, the stock produced a rather undecisive doji. The doji’s body was entirely within the previous month candle, but it closed just a tad below the 8 EMA. I would say that the odds at the beginning of January were 50/50. The first week of January started optimistically, but the price was sharply reversed and it seems to be in a downtrend now. If the January’s candle closes below 33.25 – November low – or, ideally, below 20 EMA (approximately 32.50), the next month would have the almost guaranteed lower prices. Note that RSI shows a declining curve that is approaching 50. If the price drops below 32, there is a possibility that the monthly PSAR flips bearish. Both indicators would support a continued downtrend.
Starting at the end of November, the stock advanced. A strong recovery would be producing the strong green candles along the way, but it did not happen. You would notice that the majority of the weekly candles are red. The last two candles – a Spinning Top and a confirmation – hint that the trend has likely reversed. This week closure below 33.25 would confirm the lower prices ahead.
Note how the price was rejected above 8 EMA and is now below 50 MA. The 8 and 20 EMA made a bearish cross in November and it is well maintained. Both 8 and 20 EMA seems to be determined to cross below 50 MA, adding weight to the bearish odds.
It is also interesting how the weekly RSI behaved over the last two month. There were two attempts to cross 50 from below and both failed – another bearish sign.
The daily candles combo hints towards the lower prices. The only question at this point is the depth.
Note that over a week RSI dropped from 60 to 40. At the same time, 8 and 20 EMA, and 50 MA crossed the 200 MA. From the perspective of moving averages, there is no support for the daily price and we should be looking at the weekly chart to find the next support line of 30.39 at the level of 100 MA. If 33.25 is crossed and closed below in the next several days, it would be a very interesting end of January.
The three-month candle for October-December completed a Bearish Engulfing, increasing the bearish odds over 70%. If Q1 of 2021 closes with a red candle below 33.25, be ready for a multi-quarter bear market.
Elliott Waves & Targets
While there is an operational bullish count, I would like to focus on a potential bearish path for the stock in this section. I view the wave in 2011-2016 as the first wave (A) of the much longer correction that is still ongoing. The stock spent another 5 years in developing wave (B) and is now working on wave (C). As marked on the Daily chart above, I believe that GDX has made a setup 1-2-i-ii and that wave iii of 3 of (C) has started. If it is indeed that wave, I would be considering two options for the next several months:
– if wave 3 unfolds as a direct motive wave, I would expect the next target for wave iii at about 22-24 in the next month which could be followed by a multi-month consolidation for waves iv and 4;
– if the whole wave 3 decides to take a shape of a diagonal, the downward ride could be very overlapping. In this case the target for wave 3 could be in the area of 20.
My current target area for the end of wave (C) is 12.19 which is 0.618 of the length of wave (A). The price could even go lower, but I view this highly unlikely at this point.
If the channel projections on both charts are accurate, wave (C) could take from several months to several years to fully develop.
I also think that the top of wave (A) – 12.53 is a very critical point. If the price falls below this level and reverses, a new bullish trend could possibly start. If the price fails to reach 12.53 and reverses before, there could be a possibility of a continued correction for another 10-12 years.
The most important next step is the cross of 33.25. This level is crucial from the perspectives of Daily, Weekly, Monthly, and Quarterly times frames. A closure below this level on any of the time frames would mean a continued downtrend for that time frame. I am watching closely.