How Much Higher Can the Gold Miners Rise?

The rally in gold miners which began in mid-December now measures over 31% and the GDX is threatening to move back above its 200-day moving average for the first time since early September:

GDX_Daily_1.16.2015

Given that other ‘bear market rallies’ during the past couple of years have ended at around the 40% mark one might surmise that the current rally is nearing its apex. That however would be a superficial estimation given that the gold miners are rallying from a very low base after possibly ending a grueling 3+ year bear market:

GDX_2012Even a standard 38.2% retracement of the decline from the September 2012 peak would mean an additional 36% remains for the current rally.

While the gold miners remain my top equity sector pick for 2015, there are some reasons for near term caution:

GDX_Bullish__index

A huge move up in the Gold Miners Bullish Percent Index (BPGDM) as well as frothy sentiment readings on the sector are reminiscent of the August 2013 rally which ended up fizzling out quite badly. However, as we can see above the August-September rally brought the BPGDM all the way up to 72.41 before topping out and rolling over.

In summary, I am medium/long term bullish on the gold miners while exercising some near term caution.