What’s happened the past few months in the precious metals mining sector has been absolutely breathtaking. GDX, the ETF that tracks the performance of the major gold and silver miners, is up nearly 100%.
Could OIL be next?
OIL is another exchange traded fund. It tracks the performance of West Texas Intermediate Crude Oil. It’s showing a very similar setup as to what we saw in GDX prior to GDX exploding upwards.
What exactly happened in GDX that is repeating now in OIL?
First off, GDX endured a multi-year bear mauling that destroyed investors and repeatedly crushed all hope of recovery. Peak to trough, GDX was down as much as 80%.
Even more significant was the massive high volume support base that GDX established over the six months prior to finally breaking out as seen in the below volume-at-price chart.
The chart shows the peaks in volume at different prices on the left vertical axis. The most shares in GDX changed hands between $13 and $15.
A similar pattern is now playing out in OIL.
Our Stock State Indicator system (SSI) exited nearly two years ago and the SSI Trend has been decidedly negative. OIL still has some work to do before the SSI Trend can fully recover but we can see in the chart below that the SSI Trend is already starting to flatten out.
Moreover, we’ve seen a massive volume base established between $4 and $5 – again about 80% below the peak price of OIL.
Serious overhead resistance is all the way up between $8 and $9.
I’m keeping an eye on this opportunity myself. If I see price pull back and test high volume support on OIL again and I see the SSI Trend start to turn up and trigger an all clear signal, I’ll be looking for 100% gains in OIL, similar to what we’ve recently seen in GDX.
As for the broader stock market, as I wrote last week, the price action of the past six weeks has been unmistakably bullish but I’ll be gobsmacked (look it up if you need to) if we don’t at least see a significant pullback in the S&P 500.
This kind of massive overhead volume-at-price resistance just isn’t broken through that easily …
Richard M. Smith, PhD