ETF Trade: Gold Miners ETF Could Jump 33%

I write quite a bit about the scans that I run each night, but most of the time I write about an individual stock or ETF. However, from time to time there is a theme that jumps out from the names on the bullish or bearish list. This was the case when I ran the scans last night.
Nine of the 12 names on the bullish list were related to gold, gold mining or silver. When I looked through the charts for these 12 stocks and ETFs, the pattern that stood out the most was the chart for the Market Vectors Gold Miners ETF (NYSE: GDX). The daily chart shows the GDX has a couple of points of support working in its favor. The first is the $20.25 area which acted as support in early October. After the price dropped below this price level it served as resistance during the rally in late November.

The second source of support is the 50-day moving average which is currently at $20.40. You can see how the trendline has acted as resistance in November and December and now it should act as support. You can also see on the daily chart how oversold the GDX is based on the slow stochastic readings.
When we look at a weekly chart, we see that the $20.25 area has been important even before the recent dancing around the area. Going back to December 2013, the $20.25 area acted as support back then as well. We also see that the 13-week moving average is at $20.27 and should act as yet another layer of support.

One area of concern for the GDX lies in the fact that the fund just came out of overbought territory on the weekly stochastic readings. Normally this wouldn’t raise too much of a red flag for me, but when you look at the fact at the past, it becomes a little more concerning.  The indicators are still in the 60 range and in the past few years when the indicators came out of overbought territory, they didn’t reverse until they got to oversold levels.
We can also see on the weekly chart that there is resistance up at the $27.75 level. The fund hit peaked out at that price range last March and last July. Should the GDX rally, you will want to be aware of the potential resistance. If you are long or thinking of going long the GDX, there is plenty of room between the support and the resistance. From the closing price yesterday to the resistance would mean the fund jumped 33%. That is precisely what it did from December 2013 through March 2014. I wouldn’t be surprised if it did it again in the next three or four months.