Dec 23 – Stock Picking

No doubt you’ve seen someone in the produce section or even out in a field picking apples, strawberries, or some other food product.  They usually wont just grab the first one that they see, but instead they will compare one piece of the fruit side by side with another piece of fruit. They are looking to see which one looks healthier, or possibly which one might be flawed, so that they can choose the one that is best for them or their family.

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That can be compared to stock picking within one sector, especially after a market sector correction.

We know that the Miners have been selling off, and as a result, some are still in a down trend. Even though we are expecting lows, you really want to compare the Mining fruit side by side and see if some look healthier than others. Let’s take a look at just a few charts and get some ideas as to why some might look a bit better than others.

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DRD – I mentioned in the comments section earlier in the week and then posted in the report Wednesday that DRD seems to be improving. Why do I say this? For starters I saw a small base had formed and DRD started moving above the 50sma too.

DRD- We also see that the possible base forming is turning up slowly with the start of a set of higher lows and higher highs  ( green arrows) . So we see a few signs of improvement.

GPL – I have liked GPL since October, because it has held the lows even though GOLD, SILVER, and GDX broke to new lows in November and again recently. We see that GPL is still making higher lows and higher highs too. For this reason, I have not been stopped out of my GPL position. In fact, GPL went up almost 10% yesterday, so it continues to act healthily. This long base looks like it will eventually return to the Spring highs and more.

HL CHART #1 – HL was actually doing excellent coming out of the October lows, and it broke out to new 2016 highs! Wow, but right after that election result came out, it has dropped back to the Oct lows. It is still strong, since the Oct lows were only a 38.2% pullback of the entire 2016 run, but it needs monitoring.  Good fruit can start to suffer under bad conditions, right? If we are at a Gold & Silvers ICL  (lows), this will be a double bottom base and it could rush right back up to the highs.

HL CHART #2 –  Good looking fruit that suffers under bad conditions can droop however.  So we monitor things and if HL breaks the recent lows, it could certainly dip to a 50% retrace, and may end up like this ( Just a guess).

RANDGOLD – Do you see a difference with this Miner? This one has not shown us signs of real improvement, and I have found a few that look like this. I know some people that will buy a Miner just because it has the ‘name’ that they like and traded, maybe they did well with in it in the past.  Randgold doubled last spring, but it needs to show signs of strength, since it has almost giving up all of the 2016 gains.

AU – AU ran from about $6 to $23 last spring. That was a great run higher, but you can see that this is steady in the selling too.  Lower lows and lower highs would make one want to hold off on adding this Miner to their basket. If Gold bottoms and the bull remains in tact, AU could put in a big V-Bottom, but so far, it shows no real lasting strength.

AG –  Good fruit decaying.  I bought AG, and it looked right for the picking in October too.  I saw a large A-B-C type drop and then a small base formed. I started seeing signs of an upturn and higher highs were being put in place.  I bought it as it was near the lows, and rode it for a while, but when it wavered at the 50sma and broke down? It had to be cut loose. We see that AG broke above the 50sma while Silver held up into December, but then as Silver dropped to new lows, AG broke down.  I have really wanted to own this again, but I need to at least see improvement in Silver before re-entering.

TRX–  I do own a small position in TRX, and one might wonder why. It is true, I got in earlier than I should have. We do not see a base, but we do see a descending wedge and these can break out higher and run very nicely over time.  The point is, I should have waited for it to break out higher as it approaches a squeezing apex.

Also, as we now see GOLD, SILVER, and MINERS just going sideways, we may possibly be seeing BASES forming over time.  Yes, for many , this sideways movement is frustrating day after day, but can be very rewarding in the future if they break out higher.  Let’s take a look at a few examples of what I am talking about.  This is why PATIENCE is often important and rewarding in the stock market.

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GDX –  Even in a Bear market rally, a sideways move that forms a base can lead to a profitable run higher later.  We saw that in Decembers choppy price action in 2013.  So we want to look for a possible mini bases forming now after the sell off, and we may be seeing some sideways movement in some miners.  In the past, these mini bases often lead to a nice rally higher eventually.  Here we see  GDX from below $20 run up to $27.50 in a bear market rally. That was 2 daily cycles higher.  Then again in June from under $22 to over $27.

GPL – This base in GPL saw GPL more than double in that bear market rally. It formed with choppy price action in November and December, forming that base.  We have seen choppy price action in November and December in some miners now too.

DRD WKLY – In the summer of 2015, DRD bottomed and based out under the 50sma.  When it broke out, it went from $1 to $9 in 1/2 a year.  BY the way, this is a current chart of DRD and again, we see a mini base and a break above the 50ma on a weekly basis before GOLD shows any progress.  That 50MA held DRD down in the bear market. The week ends today, we’ll see if it holds, but DRD  does seem to be acting a bit healthier at this point.

AUMN – Again in November and Dec 2013 we see a choppy price pattern that formed a base. The price gains were actually quite huge in this bear market rally, as price doubled and tripled in 2 months.

I would have to guess that today  is going to be a slow day in the markets.  It is the Friday before a long 3 day holiday weekend in the U.S. markets.  I know that I do not plan on being glued to the screen today, since I expect trading to be rather light volume and non productive ( we will see).  This report was just to give you something to think about at this point in time over the long weekend.  We have seen a sell off in the precious metals and some sideways bases in a few miners may be forming.  We may be seeing bases that can lead to good runs, even if it were the end of a bull market and a bear market rally was coming. As shown, we saw that at the end of 2013.

Often when stopped out of Miners, we may get the desire to just hop right back into one.   I’m showing here that it may be best not to just approach things with  ” I want GORO, because I did well in that last spring!”  or “I doubled my money on EXK, so I’m buying it here at the lows.”  It may be best to take some time and be one of those consumers that really doesn’t just want to grab the first piece of fruit that they see, just because it is in the produce isle.  We are paying money for our stocks, we want a healthy piece of fruit that looks ripe for the picking if the sector is ready to move higher. I will be looking for the best set ups as time moves forward, especially when this sector does start to move higher.

Whatever part of this planet you spend your next 3 or 4 days living in, I hope that you Enjoy your time off this weekend, be safe, appreciate family time, and come back well rested. The weekend report is going to discuss the idea that Gold seems to have begun the next phase of the Bull run higher early in 2016,  but what can we expect going forward?  Also,  what if the Election in the U.S. killed the Bull run?   Enjoy your Friday trading.

And thanks for being here at Chartfreak. 

~ALEX