The Gold Miners ETF(GDX)is setting up well for a fresh rally leg.  The index has been is working on a higher monthly low in October after reaching new 2018 lows last month.  This noticeable divergence from the major equity indexes is quite interesting.  We consider the GDX a fairly low risk buy near current levels.  On the downside a close back below $18.00 would violate the October lows sending a clear warning sign that a more drawn out basing process is ahead.  An important upside hurdle is the $19.25 area.  A clear take out of this zone would clear both the September and October highs.  Once past the GDX has room to run.

Option Flow Info (Bob von Halle): To add to Gary’s chart explanation above, today saw extraordinary heavy volume in the November expiration $19 strike call options. Over 60,000 contracts traded, with many chunky size blocks being lifted at the offered side. Prices started out in the morning around $.35 with the GDX around $18.30. By the time GDX closed out the day near $18.65, many of those options were bought between $.45 and $.52, and implied volatility had moved up to almost 19%.

The gold miner sector has been one of the most unloved and brutal trades since late spring. When the sector fell of the cliff starting in August, it was the direct result of the largest dedicated gold miner mutual fund deciding to change its investment mandate to include more natural resource stocks. That dictated a wholesale selling of large positions in most large cap gold miners, pretty much across the board and in gigantic size. As the market got wind of this, the price of the GDX fell from $21 all way down to $17.25 in an almost straight line as buyers completely stepped aside. Compounding this problem was the underperformance of the gold commodity itself which has languished on either side of $1,200 per ounce for quite some time now.

Today’s option flow and the fact that the GDX actually rose on the day when pretty much every other resource and industrial stock was down significantly might just be the signal that this long suffering sector is starting to recover.