I’m long this POS and obviously not happy about the big selloff.
I thought I would share some data I looked up. The ten largest holdings of GDX comprise about 65.5% of the total fund. I looked up consensus 2013 earnings for each of these 10 companies and calculated a PE for each. I then weighted these PE ratios as their percentages of GDX and calculated an estimated 2013 earnings PE ratio of GDX. It is 10.7 using closing prices from today. On April 1st the overall ratio was 12.5 for another data point.
Being that the forward looking PE for the S&P500 is about 14, GDX of course looks oversold. Being that GDX is trading at 11 ATR’s below its 200 day MA and SPX is trading at 10.3 ATR’s above its 200DMA, GDX looks oversold.
I looked up short interest for GDX and the top three holdings. All this data is always old, but there was not significant short interest as of 3/28/13. This is probably a bad sign for the longs. All the selling right now must be coming from institutional investors and the hedge fund mavens. I don’t think retail investors move markets.
Having said all that, I think this POS will go lower before it goes higher. I think this simply because I believe the sharks are also in the game now and they smell blood and will drive this down to run as many stops as they can.
Gold is in a down trend and now entered a cyclical bear market and until the down trend reverses, it is better to stay away from the miners. Might be a lot more pain ahead.
I'm waiting for gold to do another Golden Cross before getting in. When the 13 weeks EMA moves above 39 week EMA and RSI is above 50 should mark a safe entry point.
Good luck to you.
I'd rather be in your shoes now than mine. I have been using a return to mean strategy on GDX that has worked well for the last couple of years, but with this extended downturn is blowing up. On top of that my position size has gotten too large.
Anyway, are you buying gold or GDX at your entry point? BTW, it looks like a very reasonable plan.