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Tales of a Technician: A Shiny Gold Stock Beckons

March 29, 2021

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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.

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