Trade of the Day: Newmont Mining Stock Is Breakout Ready

This gold mining stock may just be beginning a bigger rally

Shares of gold mining stocks as represented by the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX) have traded in a choppy manner since late summer 2019. However, the bigger picture trend continues to look bullish, which should benefit shares of Newmont Corporation (NYSE:NEM).

As Gold Mining ETF GDX Rally Loses Glitter, Trading Opportunities Arise
Source: Shutterstock

Oftentimes active traders and investors look toward gold mining stocks to get extra leverage on the price of gold. While there is a positive correlation between the two assets, I would add that the positive correlation is strongest when the price of gold is in a clear up-trend. Such is the case currently, which is to say that in my eye one can use gold mining stocks, like Newmont, as proxies for leverage to the price of gold.

When speaking to investors I often hear them voice that the price of gold is less volatile than your average stock. While that can be true at times, for the most part gold, and in particular gold mining stocks, can display plenty of volatility, thereby tossing traders and investors back and forth.

This is to say that for gold and gold mining stocks, it is the bigger picture that must be kept in mind so as not to get stopped out by short-term spikes in volatility.

NEM Stock Charts

Source: TradingView

On the multi-year weekly chart we see that NEM stock in recent weeks began to challenge and marginally overcome its 2016 highs around the mid-$40s.

Note that the stock has been working on a series of higher lows since the second half of 2018, which importantly is a mirror picture of how the broader gold mining complex, i.e., the GDX ETF (bottom of the chart), has been behaving.

Remember, most stocks in any given sector will follow the direction of that group. Thus, to put the odds in your favor it is best to respect and trade with the trend of the sector.

Source: TradingView

On the daily chart we see that on Dec. 23, 2019, NEM stock had a nice breakout move that ultimately led to the vertical incline in mid-February. As the stock became too overbought, buyers could no longer be found and the stock mean-reverted sharply in the last few trading days of February.

Note that the stock dropped right back down toward the low $40s, which is the area where NEM stock broke out from in December. In other words, previous resistance has so far acted in a textbook manner as support.

Trading Newmont Stock

Over the past three trading days NEM stock has rebounded sharply and is now right back at its February highs. While the stock could be immediate term overbought, the aforementioned bigger picture trends are support a further move higher.

Thus, active investors and traders could look to buy NEM stock in the high $40s with a next upside target in the mid $50s and a second target closer to the $60 area. Given how volatile this stock can be at times, a stop loss must be given plenty of leash in my eyes, and thus not until NEM stock holds below the $44 area would I look to exit with a stop loss.

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