As a comparison let’s take a look at the post crash bounce we saw in July 2013 which lead to a BMR and compare it to todays romp in the gold fields. Recall back in June 2013 gold had just experienced its POR so everybody knew we were in a bear market, however after 2 consecutive crashes the faithful could rationalize that this could be “THE BOTTOM”. So when the bounce came after the second crash sequence volume exploded with a 77 Million share day powering the GDX up 9%. That was the largest volume day so far in the 2 year old bear market. That equals $1.8 Billion in GDX stock. I remember that day well, and recall watching the market move on my I-Phone while drinking a beer in Paris, it was stunning. The powerful up volume actually exceeded the down volume on the day of the great Goldman Bear raid which started the whole three month dual crash sequence. So it seemed that maybe this was the real deal. Maybe the bottom was in. An astute market observer would have analyzed the next day however that there was no follow through and the GDX put in a Hanging Man candle. The 25 DMA was well under the 50 DMA so we had a immediate deep correction of that explosive move before commencing the BMR. Note also that the initial bounce stopped at the bottom of the open gap left from the last crash sequence.
Now onto today’s gold romp. On July 20th we crashed and gapped down on record volume. This was a selling climax no two ways about it. What has amazed me is the markets inability to rally after such climax. This is not normal. I attribute that to Phase III dynamics and is announcing we have broken the backs of the bulls. So my analysis of the psychology is that we can’t produce a BMR. A vertical short covering rally yes, however there is no organic buying demand after that selling climax. We must construct a base before a prolonged rally. The share count was 91 Million shares moving $1.3 billion in GDX stock for a 6.6% move. Impressive, however certainly not up to the one day launch of June 2013. We still have not reached the bottom of the gap left open by the crash day of July 20th so if history is a guide maybe that would be a logical place to stall…or end. 91 Million shares is a lot of course, however its significant to note it is eclipsed by the downside count on the selling climax day of 172 million shares. I will note, however that since the crash daily OBV has started to climb but is still under its 30 EMA. So overall I have to say I am not really all that impressed and don’t think the move can be extended much further.
So how much further? Time wise I refer to the 1907 analog. That entire Mid-Point bear wedge lasted 7 weeks, but the up portion lasted only 2 weeks. So that puts the pain only for 2 weeks if one is short. As far as price, the first important level to watch is if it can enter the open space of the crash gap. If it can reach there we will reevaluate.