Gold continues to suck wind. But gold miners are starting to put up a fight. Today I want to show you how I found the best pick in the sector for this week’s Options Report.
Gold = Yuck
Let’s start with the chart of gold futures (/GC).
I see a downtrend below the 200-day and 50-day moving averages. We were fighting to stay above the 20-day moving average but with today’s 1.5% decline, prices are now submerged beneath it. There’s nothing bullish about this. At first blush, you might be wondering why I’d consider a long trade in the precious metals space. The answer comes down to the relative strength we’re seeing with gold miners in general and Franco-Nevada in particular.
Gold Miners ETF (GDX)
While gold prices are sinking today, GDX is holding firm. In fact, it’s trying to power back through the 20-day moving average. If this bounce attempt succeeds, GDX will officially carve out a higher pivot low -it’s first in a long while. To be clear, this is the first sign of strength we’re seeing here, and we’re still in the early innings. If gold stocks really want bulls to come running, GDX needs to close back above the falling 50-day moving average.
Fortunately, even though the entire industry has yet to turn higher, there is a leading stock within the space that has already bottomed.
Franco-Nevada (FNV)
Go through the top 15 holdings of GDX and do you know what you’ll discover? FNV is the best-looking one. Earnings propelled the stock back above its 50-day moving average, officially reversing the decline that began last July. With Friday’s upside reversal and this morning’s jump, we now have a higher pivot low in place.
But that’s not all!
We’re also breaking above the $125 resistance zone providing further evidence of buyers’ dominance. What’s there not to like?
Implied volatility is in the basement suggesting options are cheap and long premium plays the way to go. Typically I’d favor bull call verticals or diagonals in a situation like this.
Summary
The process I went through today is a classic case of top-down analysis. First we looked at gold. Then we turned to gold miners. Finally, we found the best-looking ticker in the industry.
That’s how it’s done.
Read more Tales of a Technician [FREE Content]
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Legal Disclaimer
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.
