We have seen the gold price get very close to new all time highs and yet the major mining stocks have languished well below their highs. But is all this going to change very soon? I think they have a decent shot at it.  And in fact what we could see going forward from today is that the major gold mining stocks once again take the lead to the upside.  Perhaps this would occur in the environment of a slightly recovering broad market.

Since 17th of December of 2008 we have seen many of the major gold mining stocks essentially ‘put to sleep’.  They have traded in a long sideways pattern for a little bit more than 2 months.  That is not necessarily a bad thing however.  After the big move that we saw in GoldCorp from the panic sell off lows in November 2008, it is only reasonable to assume that this equity needs to catch it’s breath and build some more valuable cause for the next sustained impulse leg to the upside.

Today was indeed a key day for GoldCorp in my opinion because we could have closed at the lows today and that would have forewarned that the correction in the gold mining stocks would continue and go deeper.  But instead we saw GoldCorp take a peek at those low levels and then do a very sharp reversal.  Since GoldCorp for the most part follows the GDX gold mining stock index, we did see similar action in the GDX ETF.

Take a look at this chart of GoldCorp.  You can see that it appears to have built what looks like a very large ascending triangle pattern. 

The supply line is roughly at the 33 level and it has been already hit several times. In addition if you look closely you can see that since the December 17th peak there appears to be the pattern formation of a head and shoulders bottom.  This pattern could soon be confirmed on a resumption back up to the 33 level and then subsequent breakout.  The measurement target of that head and shoulders bottom is about 40 level.

There is actually a much larger head and shoulders bottom formation which has measurement implications to 50 for GoldCorp.  On the GDX a similar pattern exists and measures to 54 range.

I think we may start to see the gold stocks catch fire again soon and start to lead the gold price. Stay tuned.

Since the breakout the GDX has had a somewhat modest rally which was going against a generally very negative broad market.  Now the broad market is breaking down again and it seems the GDX mining index is unable to buck the trend this time.

Today it pulled right back to the neckline support at 31.09.  This is a critical area.  Pullbacks to support like this and especially the neckline of a large pattern like this is key.  Ideally we want to see GDX hold support here and move sideways to slightly down.

Relative Strength RSI(14) has move to a reasonable 40 level right now.

Also key to note is that volume has contracted on this pullback to the neckline.

So again, we want to see GDX hold support here as a sign that the uptrend is still intact and we can start the next leg up.  Now what we want and what actually happens is a different matter.

Let us see how it holds up in the next few days.