Newmont Mining Corp (NEM) Stock Is Starting to Lose Its Shine

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After a spectacular 17% rally off the July 10 low of $31.70, shares of Newmont Mining Corp (NYSE:NEM) have run into some major resistance over the past few trading sessions. The U.S. Dollar Index, which is inversely correlated to gold prices, just closed lower for the fifth straight month and may be poised for a bounce. The bump from the most recent dovish comments out of the Federal Reserve meeting appear to waning as well.

NEM Stock: Newmont Mining Corp (NEM) Stock Is Starting to Lose Its Shine

Now may be a prudent time to take a somewhat bearish stance on gold miners such as Newmont Mining.

In my previous post from July 20 on gold and gold miners generally and Newmont Mining in particular, I made a bullish case for NEM and gold stocks, believing they had bottomed. That viewpoint proved to be correct, as NEM rallied 9.5% over the subsequent five trading days.

Over the past four days, however, Newmont has stalled out at the $37.35 area. NEM is also the most overbought it has been on a 14-day RSI basis over the past six months. Certainly a pullback, or at least a period of consolidation, would not be unexpected over the coming few weeks in Newmont Mining shares.


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As a major gold miner, NEM is obviously highly correlated to the price of gold. Shares of Newmont are now trading at their steepest premium to gold over the past three months. NEM is also highly correlated to the Market Vectors Gold Miners ETF (NYSEARCA:GDX), especially given it is the largest holding at 10.49%.

Newmont has been a massive outperformer over the last week in comparison to GDX. I look for both these relationship to revert back to the historic norm with shares of NEM being a relative under performer to gold and GDX over the next several weeks.


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While the July 25 earnings beat from NEM stock was impressive, coming in at 46 cents versus expectations of 26 cents, revenues beat by a much more modest $1.88 billion compared to analyst estimates of $1.77 billion. It appears the post-earnings bump may be waning as well.

Implied volatility (IV) is at the lowest level over the past six months with the current percentile at only 1%. This favors strategies that are long volatility (vega), so a straightforward put purchase makes intuitive sense.

NEM Stock Trade Idea

Buy to open NEM Aug $37 puts at 70 cents.

Maximum risk on the trade is $70 per contract. Breakeven at August expiration is $36.30 or just 2.34% lower than the $37.17 Monday closing price of NEM.

As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at deltaderivatives@gmail.com. 

Tim spent 13 years as Chief Options Strategist at Man Securities in Chicago, four years as Lead Options Strategist at ThinkorSwim and three years as a Market Maker for First Options in Chicago. Tim makes weekly appearances on Bloomberg TV  “Options Insight”, Business First AM “Trader Talk”, TD Ameritade Network “Morning Trade Live” and CBOE-TV “Vol 411” to discuss everything from volatility and option related.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/newmont-mining-corp-nem-stock-luster/.

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