Now We Find Out if the Paper Tigers Are for Real

The price action in the precious metals miners in recent sessions, while resilient, smacks of a market experiencing some short-term shakeouts to keep latecomer momentum chasers honest. 

We sold miners into the rally on Friday, and are now looking for a lower risk reentry, provided that the paper tigers of yesteryear do not reappear in the complex and send miners back down to fresh lows. 

In situations like these, instead of simply picking your gang affiliation and stubbornly sticking with them, we instead want to have some well-defined levels to keep in mind. On the GDX ETF (senior gold miners) daily chart, below, the $17 level makes a logical dividing line to hold on pullback, if we even make it down there. The main issue is not holding back under $17, even if we momentarily breach it. 

To my eye, the ideal bull setup for a new long entry would be roughly three sessions of sideways or slightly lower action after today's initial shakeout, letting that 20-day moving average (orange line) catch-up to price. 

The good news for gold bugs is that the entire sector is understandably very under-owned, including the recent news of the Canadian government selling off most of its gold reserves--That is precisely the type of headline you see at or near bear market bottoms, not tops, and not in the meat of a downtrend.