Market Vectors Gold Miners (GDX)

We are taking a position this morning in GDX, the broad ETF that covers the gold mining industry.

Let us be clear: we HATE equity ETF’s. It is far better to invest in the underlying stock that is the best performer. ETF’s are dragged down by the laggards in their sector.

But we will admit to having a poor performance in picking gold mining stocks. Fundamentals often don’t work and relative strength can be an after thought. Thus we are admitting defeat and surrendering to the ETF craze in this instance.

We are pleased that we did so well entering our gold position (GLD). And we do not regret not entering a trade in gold miners. The two do not always advance together.

But as gold made a 5% move the respective miners soared 22%. Over the last two days both sectors have corrected hard, as you would expect from a hot sector whose outperformance is known by cab drivers and waitresses. Both GLD and GDX have corrected about 3/8 of their move, a perfect bullish Fibonacci retracement.

This morning with GDX dancing around its 5EMA we are taking a position at the market (stock trading around $44.25 as of this posting.) The 5EMA often serves as a “support” level for stocks with strong break outs like this one. Our stop will be the low of the day. Simply stated if price cannot hold this area gold and the miners might be in for a more severe correction and we will seek reentry at another point.

But given the move we have seen we believe the aggressive approach is the correct one. We are thus adding gold miners to our gold holding.