Shares of gold exploration and production company Newmont Mining Corp (NYSE:NEM) rallied Friday, Feb. 20, after the company reported better fourth-quarter and full-year 2014 earnings. As a result of Friday’s rally, NEM stock now looks promising to continue higher but also has a very defined line of resistance it first needs to overcome.
Specifically, Newmont earned 17 cents per share in the fourth quarter, better than the 10 cents expected by analysts. Revenue for the quarter stood at $2 billion, better than the $1.8 billion expected. The lower price of oil helped keep the company’s operating costs lower.
In the bigger picture, gold (and thus gold mining stocks) tend to do well when a) inflation and inflation expectations are low and b) when the U.S. dollar shows some weakness. Inflation continues to be very low, and the dollar has begun to stall over the past couple of weeks (though it hasn’t yet turned over).
If the dollar can consolidate lower somewhat in coming weeks/months, then that would likely serve as a good wind at the back of gold mining stocks.
NEM Stock Charts
Looking at the multiyear weekly chart of NEM stock, we see that it had good multiyear support around the $21-$22 area (i.e., the horizontal black line). Last October/November, Newmont Mining broke below this line, but just two months later it managed to crawl back above this line. In other words, the break below support was a classic breakdown fake-out move that shook many last bulls out of NEM stock, which then meant shares could only go in one direction: higher.
Also note the uptick in volume during that bottoming phase.
On the daily chart, the November/December bottoming phase for NEM stock is even better visible, as is the subsequent break higher and out of this phase in early January. Newmont Mining then quickly rallied along with the price of gold and overcame its 100- and 200-day simple moving averages (blue and red lines, respectively), until it began to pause and settle into a consolidation phase in late January.
Last Friday’s 4.6% rally broke the stock out of the latest multiweek consolidation phase and right into a diagonal resistance line that has been in place since autumn 2013. This line of resistance, currently around the $26.50 area, must be overcome to show investors that the rally since January wasn’t just another oversold bounce.
Active investors could thus consider buying NEM stock at $26.50 or higher for a move toward the $29-$30 area in coming weeks/months. Any major bearish reversal of last Friday’s gains should be taken seriously.
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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.
