Customer Service 1 (888) 261-2693
Advanced Search

A Big Trade Is Setting Up in Small Gold Stocks

By Amber Lee Mason and Brian Hunt, DailyWealth Trader
Monday, October 22, 2012

The gold stock "pause" is on... 
 
In August, gold broke out of a months-long trading range... and climbed about 10%. Gold stocks followed suit. From mid-August, the big gold stock fund (NYSE: GDX) jumped 23%.
 
But over the last few weeks, our colleague Jeff Clark has been warning gold traders to watch for a break in this rally. And gold has played out exactly like he expected... 
 
The metal is down $50 off its highs over $1,790 an ounce. GDX is down about 7%. And Jeff believes there's more downside ahead. If he's right, there's going to be a great trade in small gold stocks... 
 
GDXJ is a large investment fund of small-cap gold and silver stocks. These are the more speculative members of the mining sector. In a favorable environment, these stocks tend to "rip" to the upside faster than the big miners.  
 
They also tend to be more volatile...
 
Like most mining-related assets, GDXJ suffered a big fall from early 2011 to mid-2012. After a 55% drop, it bottomed this summer around $18 per share... and surged when the gold rally we expected arrived.  
 
Shares climbed from $20 to $25 in just over a month. But with the pullback in gold, GDXJ has dropped a bit. It's down about 8% from its peak in September.
 
A Pause for Small Gold Stocks
 
After GDXJ's big run in August and September, it's only reasonable to expect the fund to give back some of its gains before it takes another big leg up.  
 
A pullback into the $22-$23 area would be a healthy correction... and it would offer a good entry point. When the gold-stock rally resumes, these small gold stocks will soar.  
 
To sum up, the mining stock correction has arrived. Smart traders will use this correction to put on more mining stock trades.
 
Good trading, 
 
Amber Lee Mason and Brian Hunt




Further Reading:

"The longer-term picture remains bullish for the mining sector," Jeff Clark writes. "It's the shorter-term picture that causes concern." See the chart that led Jeff to predict a short-term pullback in gold stocks here.
  
Back in August, Editor in Chief Brian Hunt showed readers how to catch the next boom in resource stocks. And last month, he explained why traders had a "buy low, sell high" opportunity. Read more here: An Update on the "Boom and Bust" Resource Sector.

In The Daily Crux
Market Notes
Gold stock uptrend takes a break... prices touch a fresh one-month low.
 
Banking giant Bank of America is up 70% this year.
 
Credit card giant Capital One breaks out to a four-year high.
 
Homebuilder funds XHB and ITB touch fresh highs on Friday as the rest of the market pulls back.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1433.19 -1.7% +18.5%
Oil (USO) 33.34 -2.1% +0.1%
Gold (GLD) 166.97 -1.1% +4.4%
Silver (SLV) 31.09 -2.0% +2.8%
U.S. Dollar 79.64 +0.0% +3.5%
Euro 1.30 -0.5% -5.5%
Volatility (^VIX) 17.06 +13.5% -50.5%
Gold Stocks (^HUI) 495.69 +0.3% -3.4%
10-Year Yield 1.77 -3.3% -18.1%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 143.39 -1.7% +20.9%
Singapore (EWS) 13.36 -1.5% +19.5%
China (FXI) 37.13 -0.9% +15.2%
S. Africa (EZA) 64.46 -1.2% +11.1%
Canada (EWC) 28.57 -1.2% +9.5%
S. Korea (EWY) 57.43 -2.6% +9.5%
Taiwan (EWT) 12.83 -2.1% +6.5%
Lat.America (ILF) 43.13 -1.0% +6.1%
Russia (TRF) 15.30 -1.4% -0.7%
Israel (ISL) 13.13 -1.1% -0.7%
Japan (EWJ) 9.14 -1.3% -1.9%
India (IFN) 22.88 -1.1% -5.7%

Sector ETFs
Symbol Price
Change
52-Wk
Construction (PKB) 16.26 -1.3% +48.5%
Media (PBS) 16.74 -1.3% +31.1%
Financials (IYF) 59.91 -1.3% +30.0%
Health Care (IYH) 85.14 -1.8% +29.5%
Real Estate (IYR) 64.78 -0.9% +27.9%
Consumer Svcs (IYC) 86.33 -1.6% +26.7%
Insurance (PIC) 17.73 -1.4% +26.4%
Retail (PMR) 25.39 -1.6% +25.3%
Telecom (IYZ) 24.93 -1.8% +22.0%
Water (PHO) 19.49 -1.3% +21.8%
Biotech (PBE) 23.18 -3.5% +21.4%
Industrials (IYJ) 70.86 -1.8% +20.5%
Defense (PPA) 20.08 -1.2% +17.4%
Big Tech (QQQQ) 65.68 -2.4% +16.7%
Software (PSJ) 27.09 -1.7% +14.4%
Basic Mat (IYM) 68.67 -2.2% +13.8%
Utilities (XLU) 37.11 -0.8% +12.2%
Transportation (IYT) 89.99 -1.6% +9.6%
Oil Service (OIH) 40.79 -1.8% +0.0%
Big Pharma (PPH) 41.76 -1.5% +0.0%
Nanotech (PXN) 5.98 -2.5% -0.8%
Semis (PSI) 13.29 -2.7% -0.9%
Alt. Energy (PBW) 3.96 -2.5% -26.9%

Recent Articles