Friday, July 26, 2013
On Monday, the gold sector did something it hasn't done since last November: It traded above its 50-day moving average (DMA) line.
Most technical analysts view the 50-DMA as the line in the sand separating intermediate-term uptrends from intermediate-term downtrends. Stocks trading above the 50-DMA are in bull mode, while stocks trading below the line are in bear mode.
So Monday's action is a BIG deal. And the rally should have folks looking to buy...
Last month, I explained how the failure of the sector to rally above its 50-DMA – when it was set up almost perfectly to do so – created a firestorm of selling pressure. I also told you that I believed the disappointing action in the gold sector could be setting up for an even more violent rally in the coming months. Here's what I wrote...
Of course, it won't be a one-way move higher. The sector will have plenty of selloffs and back-and-forth action as it starts its new uptrend. Traders should look at any declines as buying opportunities – especially any declines that come back down and retest the 50-DMA – like the one we got Wednesday...
You can see how the Market Vectors Gold Miners Fund (GDX) broke above its 50-DMA (the blue line) on Monday. It extended that rally on Tuesday. Then Wednesday, it came back down and is now testing the 50-DMA as support.
That support should hold. I don't expect GDX to decline much more than a couple percentage points below its 50-DMA. If that turns out to be the case, Monday's action will prove to be the start of a new intermediate-term uptrend for the mining sector. And GDX should work higher toward its 200-DMA (the red line) over the next several months.
Best regards and good trading,
Normally, gold is the last asset on Porter Stansberry's "buy" list. That's because "it's very difficult to determine a reasonable price to pay... The price of gold and silver tends to be driven by people's expectations of inflation and their faith in the currency." But gold is now at the top of Porter's list – find out why right here.
Like any commodity, gold goes through huge booms and busts. To profit in this sector, you must learn to master the resource market's cyclicality. Learn how in this interview with legendary resource investor Rick Rule.
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