Gold - On the Hot Seat Once Again

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Today, we're going to take a technical look at mining stocks which are an important element in the commodities market since their direction and movement tend to lead the price of gold.
 
At this point, I should add that our proprietary Alpha Signals is very bullish on the US broad market especially toward the second week of October.  The current oversold market has an overabundance of investor fear– and our signals suggest we should see the market show sort itself out and begin to move higher in the next couple of weeks. 
 
 
Clearly, mining stocks have been poor investments the last several years but fantastic trading vehicles due to their volatility. To take advantage of the ups and downs of the group, we regularly track the Direxion 3X Bull Gold Miners (NUGT*US) ETF in our Hedgehog Trader Newsletter. 
 
So what do we see now? On the positive side, the Market Vectors Gold Miners ETF (GDX*US) which tracks large cap producers is forming a base and has made multiple successful re-tests of its major support around $13. What's even more bullish is we've seen its MACD indicator rising steadily for 2 months as the ETF's price has consolidated sideways. This positive divergence is bullish for a major upturn within the next few weeks.
 
 
We think the time to scoop them up is approaching once again, though it is not here just yet.  
 
To get a sustainable move higher, we'll need to see MACD turn up and break through the top of the green triangle where it is currently consolidating.
 
The chart of the yellow metal itself does not look at its best- its RSI and MACD are each capped by a declining trend-line, a negative divergence that needs to end soon. In addition, the $1100 level needs to hold and deliver more than an occasional pop to preserve the recent pattern of higher lows.  
 
Since the miners typically outperform the physical metals when a bull move is underway, it's a bit underwhelming right now that miners are not outperforming the physical metal.
 
At this point, it may also be useful to look at commodities as a group since they are showing some promise. Here we see the group needs to take a bold step higher to break their losing streak. If we look at the CRB Index, we can see it is close to retaking its 50 day moving average which is of utmost importance, but has not done so yet.
 
 
One miner with an enticing chart is Barrick Gold (ABX) whose insider buying we've written about previously. The stock has seen a couple of big 30-40 million share volume spikes on up-days in the past 2 weeks and it has a defined support line at $6 (good for a stop-loss), not far below its current $6.19 price. Its MACD has been rising as its price has been consolidating, which shows positive divergence.  Its share price is also bumping up against its 6 week downtrend line- where a further push higher would move it into breakout territory. Though we note RSI was rising but has tapered off recently.
 
 
A much smaller gold producer with an interesting recent corporate transaction is Timmins Gold (TMM). Timmins Gold recently struck a deal to purchase Goldcorp's El Sauzal processing plant which will allow them to save $40-60 million in start-up costs when they construct the Ana Paula project and reduce their required pre-production capital to $100 million. As a part of the deal, Goldcorp (G) is making a $6 million investment in Timmins Gold for 20 million shares at C$0.30 per share which also includes a warrant exercisable within 24 months to purchase a share at C$0.34 per share. As a result, Goldcorp will now be a 9.9% holder of Timmins Gold.
 
Timmins Gold is showing gradually rising relative strength, though a break above 50 is needed to display conviction. Shares have some resistance at 27 cents, its downtrend line and 50 day moving average. A break above 27 cents on high volume would be very bullish. Support lies at 24 cents.
 
 
This article appeared before the open for subscribers at INKResearch.com.

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