With the recent strength in the U.S. dollar, gold and the companies that mine it have been mired in a correction. While these stocks have been correcting their move to recovery highs since late last fall, from a broader perspective it's clear that these stocks have technically been in a wide-trading range. The mining stocks recently tested the bottom of the range and turned higher, hinting that an end to the correction could be near. Currently, the gold miners are in a critical area on their charts, with a break above near-term resistance hinting at a resumption of the uptrend, and a move lower hinting at a larger topping process.

IN PICTURES: 7 Tools Of The Trade

In examining the chart of the Market Vectors Gold Miners ETF (NYSE:GDX), you can see the move to new highs in November and the failure to hold the breakout. GDX then proceeded to correct in three waves lower into the February low. Stepping back, you can see that this is all part of a larger trading range taking place from September to the present. GDX dipped under support in February, which could have shaken out some longs. It quickly snapped back into the base and is on its way to testing a resistance level near $47.50. GDX has cleared the 50-day moving average and a recent high. These are bullish clues, and could hint at an upside breakout.

Source: StockCharts.com

Newmont Mining Corporation (NYSE:NEM) is an individual miner that is leading the charge. NEM has endured a very similar pattern to GDX, but was able to successfully break free of the channel that was framing the recent correction. NEM is probably too extended to be in a good buying position, but the recent strength is hinting toward a test of the November highs. (For more, see 8 Reasons To Own Gold.)

Source: StockCharts.com

IAMGOLD Corp. (NYSE:IAG) is another gold miner that has been following a similar pattern to GDX. IAG recently tested the $13 level as support and there was an increase in volume as buyers stepped in. This level held on several occasions last year in September through November. This level remains a critical area to watch on the downside. Looking higher, IAG is in the process of testing the upper bounds of the channel it has been trading. If it can clear this area it could follow in NEM's tracks.

Source: StockCharts.com

Yamana Gold, Inc. (NYSE:AUY) is a gold miner that has been lagging the other miners, but has managed to hold critical support near $10. AUY has also been unable to close back above its 50-day moving average. With $10 holding as support, it would appear that AUY is headed toward a test of the upper boundary of the channel. If AUY can't make it to the top of the channel before heading back lower, this would be a valuable clue that the $10 area might give way.

Source: StockCharts.com

Bottom Line
The miners are definitely painting a mixed picture right now. The large trading ranges being formed have the appearance of large topping patterns. While we can't discount this possibility, the shakeout in GDX followed by the strength in NEM hints at underlying strength in the group. The miners are at a critical area here because a failure at these levels would put the topping thesis back in play. Much will depend on how the U.S. dollar and gold perform moving forward, but the miners have often moved ahead of the base metal. How these miners fare in the next week could have serious implications for their overall trend. (For more, see Using Technical Analysis In The Gold Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Active Trading Fundamentals

    4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)

    Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
  2. Chart Advisor

    Uptrending Stocks Dwindle, a Few Remain (EW, WEC, WR)

    The number of uptrending stocks is shrinking, but here a few that remain in uptrends.
  3. Chart Advisor

    Trade Setups Based on Descending Trend Channels (LBTYK, RRC)

    These descending trend channels have provided reliable sell signals in the past, and are giving the signal again.
  4. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  5. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  6. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  7. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  8. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  9. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  10. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
Trading Center