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. Chart Advisor

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  2. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  3. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  4. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  5. Technical Indicators

    Why MACD Divergence Is an Unreliable Signal

    MACD divergence is a popular method for predicting reversals, but unfortunately it isn't very accurate. Learn the weaknesses of indicator divergence.
  6. Mutual Funds & ETFs

    Top 4 Investment Grade Corporate Bonds ETFs

    Discover detailed analysis and information about some of the top exchange-traded funds (ETFs) that offer exposure to the investment-grade corporate bond market.
  7. Mutual Funds & ETFs

    Top 5 Emerging Market ETFs

    Find out which emerging markets ETFs have enough of an asset base, trading volume and low fees to be considered top choices in the segment.
  8. Mutual Funds & ETFs

    How to Profit From Market Volatility Using ETFs

    Volatility funds offer exposure to high greed and fear levels while avoiding predictions on price direction.
  9. Chart Advisor

    Expecting a Big Breakout In These 4 Stocks

    These stocks are tightly wound following big moves, and upon breakout more big moves could ensue.
  10. Mutual Funds & ETFs

    The Best Currency ETFs

    We look at the best currency ETFs for gaining exposure to various global currencies, based on daily volume and performance.
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!