Finally! An ETF for Gold Stocks

GDX is designed to track the AMEX Gold Miners Index (GDM), the chart of which
looks very similar to the well-known XAU
(
XAU |
Quote |
Chart |
News |
PowerRating), but I think the GDM is a
better index because it contains over two-and-a-half times as many stocks as the
XAU and, therefore, has a heavier weighting toward small-cap stocks. This means
that most of the time it can perform stronger with less volatility.

For example, during the rally from the October 2005 low to the May 2006 high GDM
was up 84% compared to only 70% for the XAU, and the GDM pullbacks were less
severe. (Note: Smaller-cap stocks normally perform better in bull markets.)

Even though GDX has only been trading for four days, you will note on the chart
below that we are showing data prior to that time. At DecisionPoint.com it is
our custom, whenever possible, to create historical data for new securities by
adjusting data from the derivative index. In this case it we have used adjusted
GDM data, and we think the chart gives a relatively accurate theoretical picture
of how GDX would have traded. For we technicians this simulated data provides a
context for trading the security without having to wait for live data to
accumulate.

Before I conclude, I should probably make a quick analysis of the chart.

A lot of people think the gold rally is over, and they could be right, but at
this point the chart only shows a short-term correction in the context of a
rising trend. Also, the PMO (Price Momentum Oscillator) has moved back to the
level where two previous corrections found support, and the price index seems to
be forming a small double bottom. The conditions are good for a short rally at
the very least.

It is my opinion that the introduction of the gold ETFs over a year ago had
quite a bit to do with the sharp rally gold experienced during that time. By the
same token, it is also possible that the debut of GDX could attract a lot of
money to gold stocks, causing at least one more run at new highs.

Nothing here should be construed as a recommendation to buy or sell this
security, but I am a big fan of ETFs, and I am delighted that this new product
is available.