With a quick look at the market heat map - a tool used to quickly show which ETFs are up, down and by how much - a handful stick out. These were the big movers of the day on Tuesday, April 9, all up between 2.7 and 3.98%. With the strong price action in these metal and mining ETFs, occurring at or near yearly low price points, is this the turn around? Here's the technical breakdown.
Market Vectors Gold Miners ETF (NYSEARCA:GDX) has been hit hard over the last year, from trading above $55 in September to below $35 recently. The trend is clearly down on this time frame, but strong price action (up 3.98% on April 9) over the last several sessions indicates at least a short-term countertrend move is underway. A continued push toward $37 to $37.50 (from the current $36.03) is quite possible. A rise above $38.60 - near March highs - indicates a short-term bottom is likely in place and a further rally should ensue. If that bullish situation develops, the 50% retracement level of the September to March decline provides the initial target, near $45. On the other hand, a drop below the April low at $33.71 confirms this trend is still solidly down and likely to continue.
SEE: Retracement Or Reversal: Know The Difference
Global X Silver Miners ETF (NYSEARCA:SIL) is also in a downtrend on multiple time frames. The 3.64% jump on April 9 may come as welcome relief to investors, as the fund has declined from above $25 in November to below $17 recently. In the first couple sessions of April the ETF broke below major support at $16.50 but has since rallied, currently trading at $17.66. This aggressive move higher indicates a false breakout lower and the potential for further upside. The target is in the $21 area, but price will need to break above $18.75 resistance first. Given the downtrend, caution is warranted though; a drop back below the April low at $16.34 signals this downtrend is still robust.
SEE: Interpreting Support And Resistance Zones
iShares Silver Trust (NYSEARCA:SLV) jumped 2.7% on April 9. While it may be coincidence, the jump comes right as the ETF enters a major support area between $26 and $25.34 from summer 2012. The last two major lows in this region - in 2011 and 2012 - resulted in the price rallying above $34. Given the overall downtrend, if buying kicks in again I would place the target near $30, as this is where resistance is likely due to multiple descending trendlines. A drop below $25.34 means the ETF is still weak and makes it a much less bullish story in my books. A break to the downside also eliminates the notion that the trust is forming a long-term base (a bullish formation).
SEE: Support And Resistance Basics
SPDR S&P Metals & Mining (NYSEARCA:XME) is displaying similar price patterns to SLV. The ETF has received buying interest right as it nears support at $37, jumping 3.45% April 9. Also in a strong downtrend, this is one of the few bullish moves investors have seen in 2013. While it is too early to tell, there is potential for a double bottom here, as the low in 2012 and (so far) in 2013 are very near the same. The price will need to rally above $48.26 for that pattern to complete, though, and would provide a longer-term target of $59. This is right near strong summer 2011 resistance. Since a stop can be placed just below $37, those that are bullish may see a valuable trade here based on potential reward to risk. Even if the ETF climbs above $42, reaching $45 - a more conservative target - over the next couple months isn't unlikely, but if it drops below $37 there is very little to bullish about.
The Bottom Line
Some big moves in the ETF metals and mining space on April 9 may continue to catch investor and trader attention. These ETFs are generally trading at or near yearly lows and while in downtrends, there is the potential for a turnaround. Look for moves through the mentioned resistance levels to indicate continued buying interest. More importantly, manage risk and watch the primary support level; if it's penetrated, weakness is likely to continue.
Charts courtesy of stockcharts.com
At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.