Schaeffer's Trading Floor Blog

Sector Spotlight: Market Vectors Gold Miners ETF (GDX)

A closer look at GDX's technical and sentiment backdrop

by 7/14/2014 2:26 PM
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The Market Vectors Gold Miners ETF (NYSEARCA:GDX) is getting hurt today, thanks to the precious metal's sinking price. In fact, the ETF slipped as much as 3.3% earlier, after front-month gold futures posted their biggest single-day drop of the year. At last check, GDX remained 2.9% lower at $26.52.

It hasn't always been like this for the ETF. In fact, the shares remain up more than 25% year-to-date, and have outperformed the broader S&P 500 Index (SPX) by 11.5 percentage points during the last 20 sessions. What's more, of the 28 precious metals stocks we track, 22 are resting above their respective 80-day moving averages -- a testament to the sector's longer-term technical strength.

That being said, the ETF has nevertheless struggled to surmount the $28 level in 2014. In fact, its last attempt at taking out this mark -- which transpired last Thursday -- petered out at $27.78.

Daily Chart of Market Vectors Gold Miners ETF (GDX) since January 2014

On the sentiment front, options traders have tended to place downside bets. During the last 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GDX has racked up a put/call volume ratio of 0.64 -- a reading that's not been surpassed in the last 12 months. In a similar vein, the ETF's Schaeffer's put/call open interest ratio (SOIR) of 0.68 is higher than 89% of all other reading taken in the previous year. In other words, traders targeting short-term options have shown a strong bias toward puts over calls. (Given GDX's technical track record, however, it's possible shareholders in precious metals stocks have been scooping up long puts to serve as hedges against any unforeseen downside in the sector.)

Elsewhere, the Market Vectors Gold Miners ETF (NYSEARCA:GDX) has piqued the interest of short sellers. During the past two reporting periods, short interest in the ETF has grown by more than 56% to 23.2 million shares. However, at the fund's average daily trading volume, it would take less than one session to cover all of these short positions -- meaning there's not a lot of sideline cash to assist GDX on a potential move higher.


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