Trading By the Numbers: Putting Money Where the Miners Are
Among the better performers on the first trading day of the week were gold miners. The Market Vectors Gold Miners ETF (GDX) finished higher by more than 3%, becoming increasingly overbought and near the top of our list of exchange-traded funds that are overdue for profit-taking.
With traders waking up on Monday to renewed Europe-induced anxieties (rumors that Italian PM Berlusconi’s would be resigning stoked by a report from Reuters chief among them), it may have seemed no surprise that buyers would converge on anything precious metals/end of the world-related.
But with stocks also gaining on Monday, it may simply be a combination of short-covering and early speculative buying in commodities in general that has sent the GDX higher for three out of the past four trading days (more on this idea below). In fact, it is very possible that the next pullback in GDX will come from an initial wave of profit-taking from those who took positions as the ETF crossed back into bull market territory.
Because of this, traders looking to get long ETFs like the Market Vectors Gold Miners ETF likely will have the opportunity to do so at lower levels. Set to open Tuesday morning with the same “consider avoiding” ratings the fund has had since late October, GDX has traded in more extreme territory in the past few days than it did back in then, when the fund’s low rating helped anticipate a drop of more than 7% in just three days.
The Market Vectors Gold Miners ETF includes among its holdings such stocks as Hecla Mining (HL) and Silver-Wheaton (SLW). Note that both HL and SLW are also among the more overbought gold mining stocks in the GDX, earning “consider avoiding” 3 out of 10 ratings ahead of trading on Tuesday.
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Strength in gold early in the week was reflected in other commodities such as crude oil, where the ProShares UltraShort DJ-UBS Crude Oil Fund (SCO) is among our highest rated ETFs, finishing lower for a fourth day in a row and exceptionally oversold. SCO pulled back by more than 2%, falling to its lowest closing level since late May.
Unlike GDX, SCO is a commodity-based fund. As such, SCO tracks a derivation of the price of crude oil (two times the inverse of the daily return of the Dow Jones Crude Oil Sub-Index, to be specific) rather than the share prices of oil companies.
The 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