MW 'Bearish engulfing' patterns are warning you: Don't buy the dip in gold-miner stocks
By Tomi Kilgore
A reversal pattern in a gold miner ETF, and in the stock of sector heavyweight Newmont, warns investors not to buy the dip
A bearish technical pattern that appeared in a widely traded gold-mining ETF is warning investors to think twice before buying the dip.
The sharp selloff in gold-miner stocks on Friday may leave investors asking themselves whether they should use it as an opportunity to buy on the cheap. Here's why the charts say no.
While gold's (GC00) rally to record prices topping $5,500 an ounce grabbed the headlines, the gold-miner sector outperformed the metal by a wide margin. Over the past 12 months, the VanEck Gold Miners ETF GDX has soared 139%, while the SPDR Gold Shares exchange-traded fund GLD climbed 72.4%.
The idea was that at current prices, gold-miner profits would increase faster than gold prices.
But on Friday, GLD dropped 10.3%, while GDX tumbled 12.8% - its biggest one-day selloff since the height of the pandemic panic in March 2020 - with all of its U.S.-listed stock components trading lower.
Trading volume for GDX, which many technicians see as a sign of validation, swelled to more than 100 million shares on Friday, more than four times the daily average.
The fundamental reason given for the selloff appeared to be that President Trump's pick of Kevin Warsh to be the next chair of the Federal Reserve prompted a big bounce in the U.S. dollar DXY, which is viewed as bearish for commodities such as gold and silver (SI00).
But Friday's GDX selloff isn't what should make buyers think twice, or worry those who already own gold-miner stocks. The real technical trouble started a day earlier for the GDX ETF, as well as for a number of its components - the biggest being Newmont $(NEM)$.
On Wednesday, GDX opened at $110.38 and closed at a record high of $112.16. Then on Thursday, the stock opened further in record territory at $113.29, but quickly reversed course to end the day at $107.98, or well below Wednesday's open.
For those who use candlestick charts, which were developed centuries ago in Japan, that pattern is referred to as a "bearish engulfing." The idea of the pattern is that Thursday's open marked a buying climax, allowing bears to launch a successful counterstrike.
Followers of Western charting styles will often refer to the same pattern as a "key reversal day."
Whatever you call it, it warns of a reversal in trend.
So the sharp selloff on Friday is actually viewed as confirmation of the bearish call; if bulls had much fight left in them, the GDX ETF wouldn't have fallen so much.
And it's not just the GDX chart in which the pattern appeared.
The stock chart of Newmont - GDX's largest component with a market capitalization of $124.5 billion - also saw a bearish engulfing appear on Thursday. So did the chart of the fund's second-biggest component, Agnico Eagle Mines $(AEM)$, with a market cap of $96.7 billion.
In all, nine of the GDX ETF's 22 U.S.-listed components saw similar bearish engulfing patterns form on Thursday, after record closes on Wednesday. Two others saw the pattern appear on Monday.
As with any technical pattern, the calls they make are never perfect. But at the very least, investors should think twice about buying the dip, and wait for another sign that suggests bulls have regained their strength.
Don't miss: 7 key candlestick reversal patterns.
Some downside price levels for GDX to keep an eye on for potential support signals start at just below $90, where the 50-day moving average ended on Friday. That's a widely followed short-term trend tracker that has helped halt pullbacks in late October and early November, as well as in July.
Below that, the $84 to $85 level could provide support, as that marked a battleground between bulls and bears - acting as resistance on the way up and support on pullbacks - from mid-October through the end of December, just before GDX took off in early January.
-Tomi Kilgore
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(END) Dow Jones Newswires
January 31, 2026 07:00 ET (12:00 GMT)
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