While many view mining companies as a proxy for gold, they are not necessarily so. There are many influences that can affect the performance of a mining stock that are unrelated to the performance of the underlying physical: management, cost of mining, depletion, labor issues, added debt, etc. That being said, charts capture the essence of timing so lacking in fundamentals providing information on how, (long or short), and when to enter, and at what price. Charts allow you to actually see how the markets are developing into trading opportunities, as well as when to avoid committing money. [Below are analyses of gold and GDX (as a proxy for the relatively large cap gold producing stocks), in chart form, that may help you better understand what trades you should, and should not, take.]
So says Michael Noonan (edgetraderplus.com) in edited excerpts from his original article* entitled Taking Stock Of Gold Stocks – ANV, NGD, AUY, FCX, NEM, AEX, GDX.
[The following is presented by Lorimer Wilson, editor of www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Noonan goes on to say in further edited excerpts:
What we know about charts is that they do not lie and most accurately depict conditions and character for each time frame and for any given stock or futures activity. You can actually see how markets develop into trading opportunities, as well as when to avoid committing money. Charts tell a “story” where the developing market activity is providing information on how, (long or short), and when to enter, and at what price. Charts capture the essence of timing so lacking in fundamentals.
What is important to understand is that you do not need to be a “technical analyst” to understand how to read a chart. Markets are full of logic. One needs to exercise some patience and follow the logic, as explained, and you will have a greater sense of what to expect in any given situation and at any given point in time. When things are not always clear, that, too, is a message from the market to leave well enough alone, and look for other, clearer opportunities. Is that not a worthwhile objective to manage risk and increase positive results?
…The kinds of patterns we identify appear over and over in the markets. It then becomes a “simple” matter of searching for the same pattern behavior moving forward. It is called having an “edge,” the expectation of a favorable outcome based upon past history. As in life, in the markets, history [patterns] repeats, not always exactly, but the patterns rhyme very closely. Each situation is unique in how the future will unfold, something you cannot know in advance. By…using recognized pattern situations that have a “story” behind them, the probability of you trading/investing successfully have increased in your favor dramatically.
You want to find those situations which tell you that the “probability” of a directional market move is greater in one direction than the other. This is what will give you an edge in decision making. Now you are trading with an edge. There is no reason to ever do otherwise.
The Big Picture – The Gold Charts
We always start with weekly charts to identify the primary trend and then be able to put the daily chart into a relative context. Higher time frames are more controlling over lower time frames.
The weekly chart above shows the current down trend weakening but not ending. As is pointed out in the weekly silver chart, one only need look at the rally that began in June, 2013. If anyone thought the breaking of a TL [Trend Line] meant the end of a bear market, look again. It takes time for a trend to change, and with the exception of a “V-Bottom,” there are a few phases that mark trend changes.
The Bearish Spacing still stands out for what could be formidable resistance, yet to be determined. As a reminder, bearish spacing exists when the last swing high, August 2013, fails to reach the lows of the last swing low, May 2012. It indicates sellers did not feel the need to see how the swing low would be retested. They aggressively embarked upon their selling campaign certain that lower prices were next.
Daily for reference:
For the sake of brevity, and to provide a broader outlook of the market in general, only his analysis of the GDX is included in this excerpt.]
You want to find those situations which tell you that the “probability” of a directional market move is greater in one direction than the other. This is what will give you an edge in decision making.
GDX – Weekly Chart
For as negative as the weekly chart below appears, there was actually a low risk, greater reward probability situation that developed when GDX stayed in a TR for the last half of January into early February. Take a look and see if you can spot a few reasons why this was a reasonable short-term buy candidate. You will get some answers in the next paragraph, but you want to learn to look for your own “story” developing.
TRs lead to breakouts. In the middle of January, there was a gap up in price, just under 23. For the next six TDs, price moved sideways and held the gap up, indicating support. From the end of January though the first part of February, the bottoms of the day ranges stayed above the support line.
Note above how volume declined just prior to the upside breakout. The declining volume told you that there was no selling pressure at the February low. It was followed by a relatively strong rally and high-end close bar, just under resistance at 24. A buy stop just above 24 made sense. The risk was a stop just under 23! Price gapped higher next day. A buy stop automatically put you in the trade, and price rallied, as the probability of recent developing market activity revealed.
GDX – Daily Chart
Each situation is unique in how the future will unfold, something you cannot know in advance. By trading relative strength stocks and using recognized pattern situations that have a “story” behind them, the probability of you trading/investing successfully are increased in your favor dramatically. Now you are trading with an edge. There is no reason to ever do otherwise.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
[sam_ad id=”4″ name=”Nu Yu Sidebar 01″ codes=”true”]
Every trend in the stock market continues long after it has reached its reasonable conclusion – usually until the ridiculous has been reached – and the ridiculous has now been reached and passed. The trend will now reverse as it always does. Gold stocks will now rise in value and those that understand the market, will BUY THE BARGAINS, and have a very good year. Read More »
No matter what you hear or read about gold and the prospects for substantially higher price levels, the trend is down, exactly opposite of what you know. When you compare what you know, an opinion, with what the market is telling you, the market is a more accurate measure, however counter-intuitive it may be to your opinion, [and THIS is what the markets are saying]. Read More »
We are starting to see some subtle changes in market behavior but the trend currently remains down for both gold and silver. For those who want to grow their capital, the best time to make a market commitment is with the trend and given how no one knows how the market will correct, it is best to wait and see first what the market reveals. Below are some daily and weekly charts on gold & silver charts to show you how things are developing. Read More »
[sam_ad id=”3″ name=”Cymor_Banner_01″ codes=”true”]
Don’t wait and end up paying substantially higher prices for junior gold & silver stocks, Timing is everything and the time is now. Read More »
There is no need to beat around the bush: junior mining stocks have bottomed. The bear market is over…The evidence is compelling and is growing by the day. Read More »
While the waterfall decline in gold stocks is painful for those of us already invested, the reality is that this is a setup we get a shot at only a few times in our investing life. It’s a cruel irony that those who are fully invested are now faced with the buying opportunity of a lifetime; however, it would be a shame for anyone to miss this blood-in-the-streets opportunity. Read More »
It’s been a tough road for precious metals but the path ahead has strong potential of being significantly profitable and in a short period of time. The buying opportunity that we’ve spoken of for months could be days away. When precious metals equities rebound, they rebound violently. Read More »
Following a brutal year for bullion in 2013 and an even worse year for gold miners, those bullish on the yellow metal and the companies that extract it from the earth may finally have something to hang their hats on. Read More »
After three years of pain, can gold stocks break their losing streak and see a gain in 2014? History says the chances are good. Here’s why that is the case. Read More »
We all think the price of gold, the metal, is depressed and is about equal to the total cost of production but when one compares the price of precious metals mining companies to the price of gold bullion, their prices are at historical lows. It seems that the mining shares can only go in one direction…up…but when and by how much? This article suggests it presents the greatest opportunity in 30 years. Look at the charts! Absolutely unbelievable. Read More »
The timing of this article may seem incongruous given the current weak performance of gold and gold stocks but that was the identical situation in each of the past manias – both the metal and the equities didn’t excel until the frenzy kicked in. The following documentation (exact returns from specific companies during this era are identified) is actually a fresh reminder of why we think you should hold on to your positions – or start accumulating them, if you haven’t alr
How much capital has the management team taken out of their pockets and put directly into the company? What amount of shares of a company are owned by funds or big financial institutions. The extent of such ‘skin in the game’ and ‘smart money’ involvement is crucial in deciding whether or not to invest in a particular company. Here’s why. Read More »
Which gold/silver mining companies own quality undeveloped gold and silver deposits in safe stable countries – and are extremely well managed? Such companies offer exceptional value in that they provide the best exposure to a rising precious metals price environment. Below are a number of things to look for when considering an investment in such companies. Read More »
90% of the management teams you interview will be unable to present a reasoned argument for pursuing their project and to justify the approach they are using so let’s examine Rick Rule’s 11 “must ask” questions, one by one.
Precious metal miners operate in a large variety of countries and our interest in these mining companies on the one hand and country risk exposure on the other led us to compile a comprehensive list of jurisdictions of concern to precious metal investors….[numbering 47 in total. All 47 countries are ranked below]. Read More »
The outlook for many junior resource companies in 2013 is grim so investors should focus on those who own quality undeveloped gold and silver deposits in safe stable countries. Such companies offer exceptional value in that they provide the best exposure to a rising precious metals price environment – and the assets the world’s mining companies desperately need. [Let me explain.] Words: 1328; Charts: 15 Read More »
With gold miners, in general, so attractively valued relative to the gold bullion price, the question becomes which stocks are the most compelling and have the best leverage to robust precious metals prices…In order to find the diamonds in the rough, I use what I call “The Five M’s” for mining stocks… Market cap, Management, Money, Minerals and Mine life cycle. [Let me explain each .] Words: 1146
When gold goes up again, I believe we’ll find that the junior miners that have been crushed into the dust will be tomorrow’s value plays. Your goal, then, is to identify these “diamonds in the dustbin” today. Below are 8 ways I’m finding tomorrow’s gold value plays today. Read More »
In mining exploration, an “anomaly” is a geological formation that might attract a prospector’s interest. However, one rule of thumb is that you have to look at 1,000 anomalies to find one prospect and fewer than one prospect in a thousand turns into a mine. In other words, finding a mine is a million-to-one shot and that is one reason why junior mining stocks are highly speculative. Another reason is that it’s much easier to launch and promote one of these stocks than it is to build a profitable business. So junior mines attract more than their share of unscrupulous operators and stock promoters. Words: 504
While investing in gold mining companies is not quite as simple as novices to this sector might at first conclude, neither is it so overwhelmingly complicated as to make these companies inaccessible to individual, retail investors. Below are a number of things to look for when considering an investment in such companies. Words: 2745
With gold recently trading at its nominal high it is only natural that investor curiosity about precious metals mining companies should start to grow and the fact that relatively few investors know much about the various types of companies in this market sector is an indication that this market is many years away from peaking. [This article will change all that.] Words: 1912
While juniors, mid-tiers and large producers will usually bottom around the same time, they each outperform at different times. In this missive we look at some charts to decipher when its time to buy [each category and when one or the other] should be avoided. Words: 470
There is enough risk in investing without the added risk of political instability so why does the investment community often use the same metrics to value the shares of exploration and production of resources companies regardless of their location in the world? This is so very wrong, yet it continues. Frankly, when investing in the stock market you should ALWAYS discount the value of the stock that you are considering buying if the jurisdiction is not historically safe, stable, and economically strong. [Let me explain further.] Words: 746
Leverage is the simple answer. It is not uncommon for junior mining companies to experience huge gains (10x or more) very quickly as news of a discovery is made known to the public. Words: 893
At any given time, we know the international spot price for an ounce of refined gold but what about the gold an exploration or mining company has in the ground – how do we value that? [We have the answer. Read on.] Words: 833
Every day now there is Media and Internet commentary on the current prices at which gold mining stocks are trading. Some of this commentary is excellent, some seems to be written from a “vested interest’ perspective and some is very simplistic. [This article discusses unstated underlying assumptions that some commentators base their views on, endeavours to provide a greater understanding of the gold ‘mining’ sector and influences on pricing of sector stocks and what investors need to do before investing in said sector.] Words: 2030
Looking at the recent Gold Miners price action and crash-like conditions, I cannot hide my excitement. As we judge the recent cyclical bear market within the longer term secular uptrend, we can see that Gold Miners are becoming very attractive. Whether it is the technically oversold levels that only occur a handful of times over a generation, the rock bottom valuations on nominal or relative basis, or the extreme sentiment that the overall sector is going through, all of these indicators point to one conclusion: we are fast approaching a major buying opportunity. [I support that contention below with the use of 8 charts and a full explanation of each.] Words: 1133; Charts: 8