As if things could not get any worse for the Market Vectors Gold Miners ETF (NYSE:GDX), which has mired in a death spiral of sorts since mid-September, one noted technical analyst points that things can get worse for the downtrodden ETF.
In new blog post, Chris Kimble of the eponymous Kimble Charting Solutions notes if GDX violates support in the $42.15 area, the ETF could head "a good deal lower."
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Kimble also points out that GDX has been creating a series of bearish upside wicks, a candlestick pattern that indicates sellers are scurrying back into GDX at any sign the ETF might be poised to bounce.
Those sellers have been successful. GDX is down 14.3 percent over the past 90 days while S&P 500 is up 5.4 percent over the same time. Factor in Tuesday's 1.2 percent gain and SPY is up 6.6 percent over that time horizon.
Frustrating GDX investors is the fact that ETFs backed by physical gold have not been much in the past three months. Over that time, the SPDR Gold Shares (NYSE:GLD) is lower by just 0.75 percent.
The chasm between GDX and ETFs such as GLD reminds investors that when the miners did not participate in gold's upside it was probably a sign the miners would fall faster if futures retreated. That has been the case since early November.
As for GDX, the ETF needs to hold is April/July 2012 lows (the ETF flirted with $40 in July), "or a good deal of sellers could come forward and push GDX a large percentage lower," said Kimble.
Investors looking to profit from GDX violating critical support levels can consider the Direxion Daily Gold Miners Bear 3X Shares (NYSE:DUST). DUST offers three times the daily inverse returns of the NYSE Arca Gold Miners Index (GDM), the underlying index for GDX. DUST has surged more than 38 percent in the past 90 days.
For more on mining ETFs, click here.
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