It’s Time to Take a Swing with a Mining Pick

The gold stock sector may now be a good opportunity to dip a toe in the water

On Monday, for the first time in months, I recommended the purchase of a few gold mining stocks to subscribers of my precious metals trading service.

Even though I have been cautious to bearish on the price of gold and gold mining stocks for most of this year, I have occasionally made trading buy recommendations on a few gold mining stocks.

Prior to Monday, the last time dipped a toe in the water was July 2. I had 3 picks. They started higher, but then reversed, and thankfully I saw that that was yet another bear market rally. I closed those picks 2 weeks later at breakeven.

The last time I posted buy recommendations before that was in February. There were 2 picks. They quickly turned into losses, and 8 days later stops were hit and the trades were closed.

I’m looking for short term to intermediate term trading opportunities that we hope will turn into long term holds in some cases.

So first, I take a few pilot positions. Then, if the technical environment continues to improve, we can dig in to hold those positions for the longer term and add more short term trades along the way.

On Monday I again dipped my toe in the water with 3 picks.

Is the third time the charm?

Let’s have a look…

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Gold May Be a Good Signal on Whether the Market as a Whole Has Temporarily Turned

I review a group of 40 stocks with a few proprietary moving averages and indicators. And I use the HUI gold mining stock index as a proxy for the sector. I want to know where the sector stands before waiting for a nibble on more than a few trading picks.

To start, let’s have a look at the HUI. I want to get both the short term picture, and the big picture, so I review both a long term, weekly bar chart, and a daily bar chart covering the past year.

Let’s look at the long term chart. It’s drawn to depict the condition of cycles that range from very long term down to about a year in duration from low to low.

I know that this looks complicated. But here’s all you need to know.

Counting from the December 2016 low, a cycle of roughly 18 months duration was ideally due to bottom in July. There’s usually some variance from the ideal cycle length, but this is where the cycles tell us to be on the lookout for signs of a bottom on the chart.

There’s also a 9-12 month cycle low that appears due between September and the end of the year.

And finally, there’s a longer cycle of 3-4 years. That low could also be due any time between now and late next year.

But we’re now in, or close enough to, those time windows – such that any sign of a turn should be a good signal for an intermediate rally. I have seen some of those signs on the chart, including the fact that the index has rebounded from an important support level.

So, since now looks like a low risk entry point, I have decided that this would be a good time to dip a toe in the water.

Nevertheless, if the HUI subsequently drops below 138- 139, it’s probably headed lower, and we would step aside and revisit at the next area of support.

For now, it shows promise.

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Consider Chipping Out A Nugget with This Mining Pick

Keep in mind, I do not look at fundamentals. I look at the charts and trust them to tell all the story that we need to know from a trading perspective.

Gold bugs like to dig deeper and look at the fundamentals, but that’s up to you. I’ll just call attention to the charts that I like to give you a heads up, that there’s some potential here.

One of my picks was AEM, a big precious metals miner, whose stock is often a leader at turns.

I picked two other stocks as well, but I’ll just use the AEM chart to explain what I saw.

Last week, AEM reached the area where two very important support lines converged around $35. One was the level of the November 2016 low off to the left of the viewable area. The other was the bottom of an equal height trend channel from the September 2017 high.

The slight break and recovery is a classic technical sign of a bottom. So is the fact that it did that twice within a couple of weeks – a classic double bottom. The price also rebounded above two of my proprietary cycle moving averages, representing nominal cycles of approximately 6 to 7 weeks, and 13 weeks.

Cycle oscillators at the top of the chart also reached the vicinity of a couple of previous intermediate lows, and started to turn upward. This suggests that a couple of important swing cycles have bottomed.

So I like the potential that this is an important bottom.

The rally will face challenges, particularly around potential resistance indicated by the green 6 month cycle line now descending from 40. It could hit that line in the upper 30s this week or next. 41 is another significant resistance level. If we get a rally into those areas, we can protect profits with trailing stops.

Nevertheless, a drop below 34 would signal that we should get out of the way.

If you’re looking for another gold-like opportunity, consider an opportunity that my colleague, Dr. Kent Moore’s has his eye on.

This buried treasure story is going viral.


Lee Adler

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