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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.]
The GDX
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
Summary
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.]
*http://edgetraderplus.com/market-commentaries/taking-stock-of-gold-stocks-anv-ngd-auy-fcx-nem-aex-gdx
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