Dear Sure Money Investor
When the market sold off on Monday, the gold mining stocks fell with the broad market early. But around the middle of the day when the stock market selloff accelerated, the gold stocks suddenly held their ground and quickly reversed into a spirited rally. The rally came from a critical support area near the 170 level on the HUI gold stocks index.
Since late 2016 HUI has had a 3 to 6 month cycle of lower highs and lower lows. A pattern like that is typically a bearish major trend. But in this case those downticks to lower lows were very slight. There was no follow through. As a result a clear support trendline formed. This week, that trendline is at 167.75. It is critical to the outlook.
As you recall, my old friend LeeWhee who went to the great trading room in the sky back in 2007, left us with the pearl of wisdom, “The more often support is tested, the weaker it becomes.” This support trendline has now been tested 5 times in 13 months. That means that the potential for a breakdown is increasing.
But at the same time, there’s an even more important long term support zone around 150-60. So if HUI does break support around 167-68, I would be looking to buy in that 150-60 area for at least an intermediate term rally.
|You may not know it, but these miners consistently outrun the price of gold, sometimes many times. For every 10% move in the gold price, they have been known to move 20%, 50%, 100% or more.And on March 21, thanks to a little-known Fed announcement — they’re expected to make their next big move.
If you think gold could hit $3k, you’ll want to read this.
And my charts are showing me four distinct buy opportunities right now…
HUI Gold Stocks Index
What if that trendline at 167-68 holds? It looks as though HUI is coming into a 6 month and 15-18 month cycle low. A rebound that clears the blue 6 month cycle line at roughly 175 this week would signal at least a good sized intermediate term rebound. It’s too early to tell if this would lead to a major cycle upturn, but tall oaks from little acorns grow. Every big cycle upturn starts with a short term rally. So I would be taking long positions should HUI clear 175 this week or next.
Of course gold bugs love their individual miners. I’m a chartist, not a fundamentals guy, so don’t ask me about how much gold reserves a miner has, or what their cost of production is. In my view the charts tell us all we need to know in that regard. Does the chart have bullish potential or not?
Every week I review the charts of about 35 junior gold stocks in the Wall Street Examiner weekly Precious Metals update. I’m looking for intermediate term buy points. They’ve been hard to find in the past year. Most charts have been in bearish trends. That makes it tough to find good entry points on the long side.
Today, I went looking again, for stocks that had come down near support, and looked good from a longer term trend perspective.
I came up with just a few that looked like good buying opportunities, at least for a swing trade, if not the big upturn that gold bugs are expecting.
Here Are My Four Most Promising Gold Plays
First is Goldcorp (GG). It’s one of the stronger patterns in a weak group because it is trading above its smoothed 200 day moving average, which is the dark purple line. It’s also above all its short term cycle lines. It’s a buy here, but with a protective mental stop at 12.70.
Harmony Gold (HMY) is on a short term sell signal but its longer term structure is solid. It’s well above its smoothed 200 day moving average and it has been making higher highs and lows for most of the past year. It’s consolidating now and can be bought with a protective mental stop at 1.99. If it clears 2.35 it should be on its way higher.
Newmont (NEM) is the biggest boy out standing in the field and has a bullish pattern of higher highs and lows. It is currently testing its smoothed 200 day MA and should be a buy here, but with a protective mental stoploss at 35.50.
Finally, Buenaventura (BVN) is still on a short term sell signal, but it has a bullish pattern for the past year. If it holds above or around 14 and begins to rally above 14.75 it should have a nice move to at least test its high of 16.50 and possibly more. I’d wait for it to show a bit of strength and buy on a move above the short term downtrend line now at 14.90 and dropping to 14.25 at the end of the week. I would keep a protective mental stop at 13.95.
Trading or owning gold stocks is not for the faint hearted. They’re always a roller coaster ride. Most charts in the sector are still falling. But if this is the bottom, then these stocks look like the best bet to lead the charge higher.