Buy the Eventual Bounce in Newmont Mining Corp (NEM)

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Shares of gold mining company Newmont Mining Corp (NEM) tumbled again Friday on the back of its latest earnings report.

beat the bell stock investing adviceNEM stock is materially lower year-to-date along with the rest of the gold mining group. Gold prices have been flatlining for weeks, but with Friday’s post-Japan-QE rally in stocks, they sold off more, and now the metal is lower on the year. However, NEM stock looks increasingly oversold and ripe for a bounce.

Specifically, Newmont Mining reported net income of $213 million, significantly lower than the year-ago period’s $398 million. Still, the per-share figure of 50 cents trounced the average analyst estimate for 16 cents. Meanwhile, sales dropped from $2.02 billion to $1.75 billion, while the company’s gold producing or “sustaining” costs in the quarter dropped from $1,018 per ounce down to $995.

On the aggregate, the 7.72% selloff in NEM stock last Friday likely had more to do with the broader selloff in gold miners and gold itself rather than its own earnings. Gold and gold mining stocks in recent years have been difficult to trade or actively invest in, but what has worked is initiating long positions on oversold readings for bounces and selling/shorting on overbought readings for mean-reversion trades lower.

NEM Stock Charts

Looking at NEM stock’s multiyear weekly chart, we see that last week the stock broke and closed below an important support line that stretches back to the summer of 2002 and also includes the late 2008 lows. Technical analysis 101 here argues that this is a bearish development and that as a result, NEM stock has much lower to go.

While that certainly is a possibility, in reality, when such obvious long-term support levels get broken after an existing multiyear downtrend, the stock in question typically bounces back sooner rather than later, and often enough it also marks an important medium- to longer-term bottom.

newmont mining nem stock charts
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On the daily chart, NEM stock in early October fell out of its consolidation wedge (black parallels) that had been forming since late 2013. Friday’s big selloff thus far has failed to push the stochastic momentum oscillator to new lows, and it also failed to push the RSI indicator on the above weekly chart to new lows.

From that perspective, we are witnessing some divergence between price (lower) and momentum making higher lows. But this won’t be confirmed until NEM stock stages a bullish reversal day, where an intraday selloff reverses higher and the bears lose their grip.

newmont mining stock chart daily
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Active investors and traders could look to buy NEM for an oversold bounce on the next bullish reversal day. Such a reversal would then set the stock up for a rally back to the $22 area, using the lows of the reversal day at a stop-loss.

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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/11/newmont-mining-corp-nem-stock-charts/.

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