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Gold stocks starting to shine again

S&P JUNE FUTURES (SPM6)
Contact: info@newtonadvisor.com

2026-7, 2000-1, 1982-3, 1968-70       Support
2071-3, 2083-4, 2100-2105, 2130-3   Resistance

Summary

A pretty challenging week for both bulls and bears alike, a major standoff that proved rather unsatisfactory for both camps.  Neither of the pullback attempts last Tuesday nor Thursday got much traction, with Friday's gains curbing the weekly losses to a little over 1%.  The supposed flight to quality that typically results in the risk aversion trade really didn't't have much effect on equities at all, and the despite a surging Yen and US Treasuries along with falling European indices, SPX managed to churn near the highs, largely ignoring much of the weakness.  Moreover, when looking at the NASDAQ Composite and 100 indices, they've barely seen any of the attempted drawdown that's happened in SPX, which officially closed the week out under its 10-day moving average.  Last week's attack on inversions seemed to help the biotech sector and Healthcare, which in turn helped the NASDAQ hold up relatively well.

For now, most of the issues that are causing declines in most world indices and currency volatility seem to be having very little impact for the US.  Despite minor signs of the US uptrend starting to waver, with breadth and momentum concerns, the US could very well follow the surge in Crude ahead of this coming weekend's DOHA meeting and hold up into and/or after the meeting, as the pickup in Crude mid-week certainly didn't go unnoticed by US stocks.  Despite a few signs of correlations having been unwound of late, with SPX not following Crude on its pullback attempt, it certainly did move higher this past week on days that Crude rallied, and this correlation seems to be holding up relatively better than that between SPX and either Dollar/Yen or SPX with Treasury yields. While it might seem nonsensical to put too much stock in how Crude moves for a gauge for US equities, the upcoming meeting could prove to be a huge cause for either upside acceleration, or (more likely) trend reversal back to the downside for WTI.  Prices need to show greater evidence of turning down to pay heed to the notion that US indices are following weakness globally. 

For now, the short-term daily concerns seem to be outweighed by the bullish weekly momentum.  The trend from mid-February remains bullish, despite the minor churning in the last week.  For any sort of bearish stance, we'd need to see SPX futures not only get back below 2026, but also see similar signs in the NASDAQ breaking down, which would be cause for greater concern.

What's important for this coming week:

1) Does this SPX/WTI Crude correlation continue to be more important than SPX avoiding (thus far) the flight to quality/risk aversion seen in TNX, USDJPY?  Ahead of next weekends Doha meeting, given that Crude and SPX have trended together in unison far more closely of late, it makes sense that any SPX selloff is postponed until after the Doha meeting, with Crude looking likely to follow-through on its recent strength through end of week

2) Do the Financial earnings which begin this week help to stem the decline in Financials, which have broken down to new relative lows vs SPX?

3) US Dollar woes could eventually start to help Earnings growth, which has been decidedly sub-par of late.  For now, the bounce in Energy is being followed by Precious metals and precious metals stocks

Overall, this move in Precious metals stocks is important enough to take a closer look at this sector this week.  Metals stocks have suddenly started to shine yet again, with the Gold Stocks ETF, GDX, having pushed up to the highest levels since early last year.  Given an environment of plummeting bond yields, a declining US Dollar this seems to be a perfect environment for the Precious metals. 




S&P 500
Short-term Thoughts (3-5 day) Bullish-  Still very difficult to call this recent churning the start of any real weakness in US equities.  Despite breaching its 10-day m.a., the SPX failed to push down under 2020, a level that was being used as a gauge for a potential selloff.   Healthcare has rebounded in resilient fashion, taking some of the sting out of the decline in the Financials sector.  Furthermore, the late week rebound in Crude oil on bigger inventory Draws ahead of the hugely important meeting next weekend also seems important given S&P's correlation right now with WTI.  Despite the worries of Transports and Small Caps selling off, the NASDAQ has been resilient, and not really showing much signs of selling off.  Additionally, the TNX and USDJPY declines have largely had little efffect thus far on SPX.  Until this changes, its probably right to stay long and expect some ability to press up back to last November's highs, with stops on any move down under last week's 2026 lows in SPm6.


Intermediate-term Thoughts (6-8 Months): Bearish- Despite the improvements in breadth suggesting that rallies likely can take indices ever higher on a 2-3 month basis, it will be very difficult to erase the downturn in momentum which started over a year ago and has accelerated on the pullback into last August's lows as well as into February of this year.  Indices like the Russell 2000 have not yet moved back up above former August lows, while the broader Bloomberg World index along with the NY Composite still show this rally to be a counter-trend bounce, structurally speaking.  The selectivity of this market which caused Small-caps to turn down nearly two years ago followed by Mid-caps and then Large hasn't been dramatically reversed by the sharp rally of the past three weeks, and markets are still well overdue for a 20% correction which normally follows long bull markets which begin to rollover, similar to what we saw back in 2000 and 2007.  Historically, drawdowns average 40-50% after lengthy rallies, like markets experienced from 2009-2015.  Overall, given the extent of the momentum downturn, along with the structural weakness, gains into late Spring should be used to pare back longs with the idea that intermediate-term weakness between June-September/October remains very likely.

Gold stocks on the Move- Key Charts of Sector ETF, Gold, along with 5 stocks of interest which should have further upside

 

Market Vectors Gold Miners (GDX- 21.44)  GDX's breakout above March highs looks important technically, and should lead to additional strength up to $23 before any meaningful slowdown occurs.  The initial rise from January into March coincided with a similar move in Gold which spent much of the last month in consolidation.  The fact that pullbacks proved minor and prices held up near the highs of its recent range is considered a real positive technically.  Now GDX moved above $21 last Friday to the highest levels since last February.  Momentum indicators such as MACD have crossed back over to positive while RSI is not overbought on daily charts given the last recent consolidation.   Very little resistance lies between current levels and January highs at $23.22 which is the next logical upside target, and lies still over 9% higher.  Pullbacks under $21 should be used to buy given the recent breakout back to new monthly highs with only a weekly close under $19.32 postponing the advance.

 

Weekly charts of GDX show this recent breakout from a different perspective, as GDX has just exceeded the highs of its downward sloping trend channel which has been in place since 2013.  Given the pullback in the US Dollar which is coinciding with strength in many metals, gold stocks look to have further to advance in the weeks ahead.  Weekly momentum is closer to overbought levels but can afford additional upside before showing any sort of meaningful divergence.

Daily charts of Gold (spot) show why the recent acceleration looks to be the start of a larger move, technically speaking.  The surge in February above 1190 helped Gold clear a two-year downtrend which had contained prior advances in recent years.  This year gold managed to exceed this area of resistance and has given back very little of these gains. Prices remain within striking distance of highs, having given back very little gains on the recent consolidation.  In addition, this churning since early March has helped Gold to alleviate recent overbought conditions that were present on the initial spike while traditional momentum indicators like MACD have risen to the highest levels since 2012 on daily charts.  Additional upside looks likely to 1305-10, with intermediate-term targets near 1450.
 

Gold, as seen in closeup form over the last year, had appeared to be potentially forming a topping pattern given the peak in early March followed by the slide down to test prior lows. Yet the act of reclaiming the downtrend from last month's peak can only be considered positive while indicators like MACD are on the verge of turning positive.  This should serve as the impetus for additional near-term strength which allows Gold to move back up to, and over recent peaks, on its way above 1300.
 

Barrick Gold (ABX- $15.18)  Similar to GDX, Barrick Gold has pressed higher above March weekly closing highs to reach the highest weekly close since mid-2014.  Multi-year downtrend lines have been broken over the last few months, and despite the last few weeks of consolidation, this hasn't been sufficient to think ABX turns back lower.  Near-term it's likely that gains to $17.50-$18.50 could occur which would line up with ABX's 200-week moving average, something that hasn't been tested since the middle part of 2012.  For now, similar to others listed above, the recent consolidation has gone along way towards eliminating overbought conditions, and last week's push back to new monthly highs is likely to lead even higher in the near-term.

Newmont Mining (NEM-$29.10) NEM's ability to exceed $28.40 in the last week has carried the stock to the highest levels since late 2013.  Two former meaningful highs were made near this level which makes this ability to surpass former highs that much more important.  NEM has reclaimed its 200-week moving average for the first time since the middle part of 2013 and looks likely to trend higher to the low-to-mid $30's in the weeks/month ahead.  While the stock's structure would benefit from a pullback to match the symmetry shown by lows made at the end of 2014, that looks premature at this time and most corrections are likely to be postponed until NEM reaches the mid-$30's.

Agnico Eagle Mines (AEM-$38.47) Near-term, the strength in AEM should allow for rallies up to near Summer 2014 highs near $42.40 before this shows any kind of stalling out and the trend remains near-term bullish but overbought as part of an improving intermediate-term picture.  AEM's ability to climb over $32 in February helped this stock to exceed the entire downtrend since early 2011.  This five-year trendline breakout looks significant technically speaking, and should allow for at least a 50% retracement of the decline from 2011.  Pullbacks to $34-5 would represent a more attractive area to buy from a risk/reward standpoint, but given this longer-term breakout, it might be unlikely that AEM shows any kind of real weakness before rising further to test 2014 highs.   Overall, this is an attractive technical name within the space, and should continue making upside progress in the weeks ahead.

Seabridge Gold (SA-$13.97) The act of rising back above $12 was thought to breakout of a reverse Head and Shoulders pattern which should allow for further strength up to over $16 with intermediate-term targets around $19 in the months ahead.  Similar to some of its peers, SA made a sharp breakout move late last year which exceeded nearly a four-year downtrend which had guided the stock to lower highs and lower lows.  Its success in rebounding in recent weeks is quite constructive technically and has allowed momentum to nearly reach overbought levels for the first timein years on a weekly basis.  Overall, SA is attractive and pullbacks should be used to buy technically, with initial targets just over $16.

Randgold Resources Ltd. (GOLD-$94.07) Randgold's ability to have exceeded the former highs from 2014, allowing this to lift to the highest levels since early 2013.  Momentum has gotten stretched on this move, as seen by indicators like RSI firmly in overbought territory, but structurally, GOLD has improved quite a bit on the ability to carry over prior highs, and should help this stock continue to show very positive price action.  Upside targets lie near $100, then $122, with only a move down under $85 cancelling out the positives of this climb. 

Harmony Gold Mining Ltd (HMY- $3.93) One of the cheaper stocks from a price perspective as to what's in this sector, but the act of reclaiming its 200-week moving average and its spike back to new highs should help HMY reach initial resistance near $5 which will be important to exceed to help put this stock back on the radar.  Momentum has gotten quite stretched on weekly charts, while daily patterns still argue for additional strength until at least some evidence of backing and filling is present.  A move down to new weekly lows on a closing basis would argue HMY likely retraces some of recent gains, but this would be down at $3.35 just to argue for a move back down to $3 or slightly under.  For now, no evidence of any real stalling out, and last week's success in regaining $3.85 on a close has helped HMY push back up to near $4, levels it hasn't seen since early 2014.  Overall, while overbought at current levels, HMY looks to be one stock which should benefit and gain at least another 10-15% before too much stalling out and technicals continue to improve on HMY on an immediate-term basis.

Disclaimer:

This report expresses the opinions and views of the author as of the date indicated and are based on the author's interpretation of the concepts therein, and may be subject to change without notice.   Newton Advisors, LLC has no duty or obligation to update the information contained herein.   Further, Newton Advisors, LLC makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.  The information provided in this report is based on technical analysis. Technical analysis is generally based on the study of price movement, volume, sentiment, and trading flows in an attempt to identify and project price trends. Technical analysis does not consider the fundamentals of the underlying corporate issuer. The investments discussed or recommended in this report may not be suitable for all investors.  This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as representation or solicitation for the purchase or sale of any security or related financial instruments in any jurisdiction.  Certain information contained herein concerning economic trends, Fundamentals, and/or Technical analysis, and performance is based on or derived from information provided by independent third-party sources.  

Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.  Newton Advisors, LLC believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.  From time to time the publisher, his associates or members of his family may have a position in the securities mentioned in this report:  ABX, GOLD, NEM, HMY, and SA, This report, including the information contained herein, has been prepared exclusively for the use of Newton Advisors clients, and may not be copied, reproduced, redistributed, republished, or posted in whole or in part, in any form without the prior written consent of Newton Advisors, LLC.