Once upon a time, 2016 was a banner year for gold stocks. Renewed optimism surrounding the yellow metal helped propel the Vaneck Vector Gold Miners ETF (NYSEARCA:GDX) higher by an eye-popping 131%.
Then the tides turned and what was once loved became loathed. Blame for the ongoing reversal of fortune lies in large part to the mighty U.S. dollar, which has screamed higher on the heels of higher interest rate expectations.
Most gold stocks have given back over 60% of their early 2016 gains, falling into downtrends in the process. Since plunging right after the election, GDX has consolidated in bearish fashion. Each and every bounce attempt has faced rejection in short order. And with Friday’s drop, it appears yet another breakdown is imminent.
Bears would be well served by focusing on gold stocks here, as today’s trio is perched on a precipice.
Gold Stocks to Short: Newmont Mining (NEM)
Click to Enlarge
We begin with one of the most popular gold stocks on the Street: Newmont Mining Corp (NYSE:NEM).
NEM looks virtually identical to the GDX fund, and why shouldn’t it? It’s the second-largest holding in the fund, carrying just shy of 10% of GDX’s weight.
With the post-election plunge, NEM slipped back below its 200-day moving average, signaling the rollover has officially damaged the long-term trend.
The recent consolidation has taken on the form of an ascending triangle, which is on the verge of breaking to the downside. If NEM stock breaks $32.40, grab the Feb $33 puts for around $2.60 and pray for a meltdown.
Gold Stocks to Short: Barrick Gold (ABX)
Click to Enlarge
Next up, we have Barrick Gold Corporation (USA) (NYSE:ABX). Currently, ABX is the top holding for GDX. So, like Newmont Mining, ABX’s price chart is the spittin’ image of GDX.
Really, that’s a characteristic shared across the board. Some sectors see a great deal of variety in their constituents’ charts. But not gold stocks, no. These birds of a feather flock together, for better or worse.
A brief glance at ABX’s chart reveals an ongoing downtrend complete with descending 50-day and 20-day moving averages. The recent consolidation pattern appears poised for downside resolution.
Watch for a break of $15.15, then buy the Feb $16 puts for around $1.60. Your risk is limited to the initial debit. Your reward is limited only by the stock reaching zero.
Gold Stocks to Short: Goldcorp (GG)
Click to Enlarge
Goldcorp Inc. (USA) (NYSE:GG) stock rounds us out with arguably the weakest chart of the bunch.
GG has given back the lion’s share of its early 2016 gains. Unlike its predecessors, the damage inflicted during Goldcorp’s ongoing rollover has been sufficient in turning the 200-day moving average lower.
Its recent sideways consolidation has been littered with distribution days suggesting sellers are still very much in control here. If you’re looking for a quick entry, use a break of Friday’s low at $13.05. For stronger confirmation, use a break of the low from the past month’s consolidation, or $12.60.
Upon a break of either level, buy the April $14 puts for around $2.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
