The bottom window is the daily and top window is the NYSE McClellan Oscillator. Market bottoms are made when a “Selling Climax” is generated and right after a “Sign of Strength” is seen. A Selling Climax in McClellan Oscillator terms is when it reaches below -200; A Sign of Strength in McClellan Oscillator terms is when it reaches +200.
For a bottom to from in the market the McClellan Oscillator would need to go down to -200 or lower to +200 or higher in 30 days or less. We noted on the bottom window when the Oscillator reached -200 with a dotted red line and when it reached +200 with a blue dotted line and the time span was 30 days or less. Going into the March low the there was a “Selling Climax” and coming off the March low there was a “Sign of Strength” producing a market bottom. Current rally could last into mid July timeframe and the current consolidation could be the half way point of the move up (see page two for that reasoning).
We updated this chart from yesterday and yesterday’s commentary explains the reasoning the current consolidation may be the halfway point of the move up. “Last Thursday the 5 period RSI reached 88.41 and the 14 period RSI reached 78.69. An RSI (14) of 80 and an RSI (5) of 90 (Last Thursday’s highest RSI 5 and 14 period where shy of just 1.5 points of the bullish levels) suggests the market has strong momentum and never the last high in the market. The RSI (14) reached 80, eight times since 2002 (once every 3 years) (noted on chart above). It’s common for the RSI (14) reading near 80 is that it has marked the halfway point of the move up in the past. This week is leading into a three-day weekend (Memorial Day Monday and market are closed) and can see less volume this week as traders take off early for the holiday. Light volume pullbacks are usually a bullish sign. Could see pull back this week but momentum suggests higher prices after holiday.”
Above is the monthly with its GDX/ ratio in the bottom window. A trading range started back in January for GDX with its upper boundary near 118.00 and lower boundary near 80.00. Our thinking for the moment is that the current trading range in GDX is the half way point of the move up. If that turns out to be the case than GDX could rally to 200.00 range. The reason that GDX is at the half way point is the bottom window, the monthly GDX/GLD ratio. This ratio has been trading sideways for 13 years and is due for a breakout. The breakout area on this ratio is near .20, which is where its at. Notice that its not backing away from the .20 resistance suggesting that the ratio is eating up supply and once supply is gone this ratio will start to move higher. Next upside resistance for this ratio is the highs in 2010 up near .40. A rally to .40 on this ratio with out moving from current prices would put GDX near 180. But gold will rally along with GDX and most likely GDX will be much higher. Big rally coming in GDX but current consolidation can last several more weeks.
