Gold stocks have been trading in a downtrending channel for the month of December, based on the XAU.X - Philadelphia Exchange Gold and Silver index. I believe it’s about time they broke out of it.

Today could be just a retest of the broken uptrend line from October. I predict it’s not though, and that the past few days have been a shakeout before the gold and silver index breaks the channel to the upside.

There are three ways to play the action in this sector based on the XAU.X chart. Gold stocks AEM - Agnico-Eagle Mines Ltd., and GG - Goldcorp Inc., are two stocks that I trade which look similar to the XAU.X here. The third way is by trading the diversified GDX - Market Vectors Gold Miners ETF. All three have tested the 50-day moving average area, and found support there. All three gold stock picks are also stuck trading in the same channel.

A break higher will have me looking to trade the stocks long.

I was out for today’s trading session. If the range on the Nasdaq Composite is any indication of volatility today, it must have been very selective. The ETF QLD - Ultra QQQ Proshares, formed a NR7 trading pattern today. With the Nasdaq finding support at it’s 50-day moving average, and the close near the high of the day, I’ll be watching QLD for a long entry.

QLD moves at 2x the Nasdaq-100 Index. I’ll buy the higher high on the daily chart, with a stop loss below today’s low. I’ll look to short QLD, or go long QID on a break below today’s low. Handing the change of direction back to the bears that quickly would be ugly.

The short-term trend is down on QLD, but with end of year seasonality in play, my bias is long. A few weeks ago when the market was stuck in a pattern of low volatility, the daily trading ranges were small, and finding trades was tough. I could still see the Nasdaq and QLD making a swift, powerful slingshot move to new 52-week highs after this week long shakeout. The major stock market indexes should be back in high volatility mode. As always, I won’t predict on my entry, but stay prepared for the patterns to occur. Trade consciously.