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Five Gold Stocks to Follow


This commodity isn't going anywhere soon.

All last week the buzz was in the air ... gold is sticking above $1,000! As rotation occurs, I've decided to take a look into the mine and see if I can find some nuggets that are worthy of our capital. See also Is Gold's Price a New Floor?

Several charts in the mining sector merit a closer look from our piercing headlamp, and if gold and silver remain the talk of the town then these plays should hold plenty of upside.

Mind you that the emotional and psychological aspects of trading gold, miners, and other metals are strong, and any trends forming should be respected. All charts are weekly reads.

Companhia Vale Do Rio Doce ADS (VALE)
The Trade: Long on break of last week's high of $21.61. Stop just under the weekly 50 MA.

Click to enlarge

While most people will group Vale with steel stocks, this Brazilian conglomerate also has a precious metal component and has enjoyed a stellar performance since the lows formed in October 2008, it's not the purest play on the group, but it's worth of a second look nonetheless.

The weekly chart above shows two years of price data with Vale coming into a pivotal area of resistance.

A trader can easily see on the chart where Vale has bumped its head three times in the past few months on the horizontal trend line, and each time retreating. Last week, Vale decided to pop above and then settle right on this line, displaying a bit of stubborn optimism. Taking out last week's high of $21.61 and closing above the trend line would solidify the current run and make a solid entry point.

Determine your stop at one of several key support areas underneath (50, 200, ascending trend line) and size your position accordingly.

Iamgold Corp. (IAG)
The Trade: Wait for a pullback into the channel before buying.

Click to enlarge

A monster run such as Iamgold makes a novice trader, who's just now looking at the chart, do one of two things: jump in to not miss the remaining run, or short this chart just knowing it has more froth than a cappuccino.

Neither move is the prudent position to take unless it can be verified and quantified with solid technical clues. So, instead of a knee-jerk reaction, a trader would want to weigh the merits and then make a decision.

The horizontal trend line just below $12.00 goes clear back to the mid-2006 high. A trader would first note that for several weeks, Iamgold respected this multi-year high before blasting quite decisively higher in the past two week, a sign of leadership strength.

A channel going back to fall-2008 lows captures 99% of all price movement in this time period, so the current jump out of the channel should be viewed with cautionary optimism.

Many times a parabolic blow off happens at this juncture, sending prices on a whirlwind run that offers little in the way of a manageable trade.

For a trader looking to position in Iamgold, a best-case scenario would have Iamgold consolidating sideways for a few weeks, giving them a base from which to assign risk/reward. The recent strength is encouraging, but a bit too extended for my taste.

Should Iamgold offer a pullback into the channel, this is one to watch.

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