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My Plan for Trading Gold Stocks

By Jeff Clark
Monday, March 1, 2010

The gold sector is flopping back and forth like a trout in the bottom of a rowboat.
 
In my S&A Short Report, we managed to catch a couple quick trades in anticipation of a bullish percent index buy signal for the gold sector. And when the buy signal hit, I was salivating over the possibility of adding exposure in the sector. But as I wrote in Tuesday's Growth Stock Wire, something just wasn't right with the gold stocks. They had behaved poorly the previous Friday, and I was getting mixed signals.
 
Then, the gold sector dropped 3.5%.
 
This is actually good news for us. As I wrote on Tuesday, if the sector drops back to a lower low, it may develop "positive divergence" on the charts. That would set up a terrific longer-term buying opportunity.
 
It now appears that is happening...
 
 
The blue lines on the chart display a declining channel, and the red lines are the obvious support levels. Notice how the rally off the early February lows stopped right at the resistance of the declining channel.
 
Notice also there was no positive divergence on the MACD momentum indicator at the lows. This was a good clue that even though the sector was oversold and due for a bounce, the bounce would likely fail and GDX would come back and retest the lows.
 
The best situation we can hope for now is for GDX to drop below its previous closing low – at about $40 per share. Given where the MACD is right now, that would almost certainly create positive divergence (which means the decline is losing momentum). And that is when you could get aggressive with several gold stock positions.
 
This scenario may or may not play out. But the sector is following my script quite closely so far. Be patient and look for a shot at GDX below $40.
 
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%