It is very difficult to pick exact bottoms but there are many tools we can use to help us pinpoint potential bottoms.

You don’t hear technical analysts talk about fundamentals but we do for a reason. Major shifts in the primary trend are supported by fundamental shifts, though they can be very hard to spot until after the fact.

Because of our extensive study of history, we are convinced that precious metals will not begin a real bull market until the Fed stops hiking rates. The data shows that many times (though not every time) the gold stocks bottomed soon after the Fed’s final rate hike.

Yes, we’ve beaten this to death but the point is fundamentals matter.

Moving on, we are going to introduce you to a number of tools and indicators which you can use to spot potential bottoms and turning points on a shorter term basis.

The first and foremost focus should be the price action and the various support and resistance lines that are nearby.

In the chart below, we highlight the support and resistance areas.

For example, GDX last week bounced from support at $18. It faces strong resistance above $20. A loss of $18 would likely lead to a test of support in the $16s. GDXJ meanwhile, bounced from its September low at $26. It faces strong resistance near $30 and if it loses the recent low could test support in the $22-$24 range.

GDX & GDXJ Bar Charts

After considering the price action and important support and resistance levels, we turn to the breadth indicators which provide us information in regards to participation and sector divergences.

We plot GDX below along with its advance decline (A/D) line, the bullish percentage index (BPI) and new highs minus new lows.

GDX & Breadth Indicators

The A/D line, which is one of the most trusted leading indicators is flashing a negative divergence. It looks similar to the one in early 2015. Note that it flashed a major positive divergence in early 2016. Smaller positive divergences were seen in March 2018 and September 2018.