Deep Pullbacks in Little Gold Miners
The pullback in stocks on Wednesday put a pause in the slow-motion drift higher in the market, a drift higher that many traders had been lulled into thinking would continue, unbroken, until year’s end. Whether or not the selling on Wednesday – which put the S&P 500 into negative territory for 2011 – represents a lump of coal where a Santa Claus rally had been expected, remains to be seen. What is far clearer is the fact that sellers continue to send the shares of gold miners lower in an almost emotional reaction to the breakdown in the price of gold.
Trading in bull market territory or bear, gold mining stocks continue to be overwhelmed by selling from traders and active investors alike. Closing lower for three out of the past four trading days, shares of Yamana Gold (NYSE: AUY), for example, are trading just above their 200-day moving averages – and just above oversold territory as well. Also pulling back in bull market territory are shares of fellow miner, Royal Gold (NASDAQ: RGLD). Shares of RGLD dropped by nearly 4% ahead of trading on Wednesday.
The selling is not limited to gold stocks, either. Finishing at its lowest levels of the year was silver specialist like Pan American Silver (NASDAQ: PAAS). Shares of Silver Wheaton (NYSE: SLW) dropped by more than 4% to close at its lowest level since early October.
As such, in an exchange-traded fund market with relatively few clear edges, the “consider buying” rating of the Market Vectors Gold Miners ETF (NYSE: GDX), which includes the major precious metals mining stocks among its holdings, stands out. GDX has closed lower for four out of the last five trading days, with the last two days of the ETF’s pullback in oversold territory.
Critical in the instance of GDX, however, is the fact that the fund is trading below its 200-day moving average, a disqualifying factor for many short-term traders in ETFs who only buy funds when they are trading above that level. This may make GDX, with its 9 out of 10 rating, a “special situations” trade for some. It may also be more helpfully a clue to focus on some of the fund’s components still trading in bull market territory like Yamana Gold and Royal Gold. Note that Yamana Gold earned a ratings upgrade to 7 late in trading on Wednesday, while shares of Royal Gold are set to open with “consider buying” ratings of 8 out of 10 Thursday morning.
The stocks and ETFs in today’s report were drawn from the data and research available through PowerRatings. To find out more, click here.
David Penn is Editor in Chief of TradingMarkets.com