The set-up: Today tends to be a slack to down day after the July 4th holiday. Moreover, Nasdaq is coming into its weakest part of the year; it has already been weak, but the next two months historically are its worst.
Meanwhile, gold has reached a key support level here, and the 4-hour futures chart is showing a double-top in place at $1,295. It either bounces here or confirms the double-top and moves over.
While this time of year is weak on the Nasdaq, it’s normally a stronger period for gold and silver miners, so I am watching to see how that sets up. VanEck Vectors Gold Miners ETF (GDX) has a key support level right around $21.16, and has bounced there twice so I’ll watch the action of both the miners and the GDX at that point.
What I’m looking for: When we get down to this zone around $21.19, I’ll be looking for some sort of bottoming formation on an hourly chart. If I see a reverse candle form on the hourly, I will go long the GDX or will look to see about individual miners.
The possible trade: I’ll be looking to get into the GDX on the bounce, somewhere in the $21.40 to $21.50 area. If it happens, I’d be looking to ride this up to the 50-period moving average, which today is 22.39. My stop will be at the level where I see the bounce; if it falls back, I want to get out for a small loss to see if it regroups.
Petra Hess runs PetraPicks.com. She is a technical swing trader and long-term investor in domestic and Canadian stocks and ETFs. She only trades shares, not options. At the time this article was published on RagingBull.com, she had no shares, or open orders in GDX or in precious metal miners, but was planning to trade GDX and was considering individual mining stocks as described in this article.