CDE (Coeur Mining) could offer an objective long entry on a break above the downtrend line although it may or may not need one more thrust back down inside the pattern. Although currently overbought with an RSI reading of 72.76, the stock made considerable gains after reaching that level in late 2013 following an oversold reading similar to the most recent one. If a breakout occurs soon, best to take only a partial position, adding on the next decent pullback assuming the charts still look constructive.
Long Setups are stocks or ETFs that are in a bullish technical pattern formation that are poised to break-out and provide an objective long entry. This category may also include stocks that have already triggered a entry but still offer an objective entry or add-on, such as a during a pullback to support.
After hitting the first target yesterday for a quick 5.5% gain, VHI (Valhi Inc) pulled back to the 5.50 former resistance level, which is now support, before moving sharply higher. Volume on yesterday’s move was extremely high & volume continues to track well above average so far today, which helps to set this most recent counter-trend rally apart from the previous rallies that proved fleeting.
Although subject to change as the stock trades going forward, my current preferred target is the 7.75 resistance level (with my actual sell order likely to be place 10-15 cents below). Now that the 5.50 breakout level has been successfully backtested, consider a stop slightly below that level. The stock is also currently challenging this downtrend line resistance shown on this 4-hour chart. A break above would likely send prices moving quickly towards the previous reaction high of 6.80.
VHI (Valhi Inc) has taken out the 5.50 resistance level, triggering an entry for the most recent aggressive trade posted earlier today. I have added some near-term resistance levels to this 60 minute chart which can be used as price targets. Normally I list my price targets slightly below the actual resistance level in order to help avoid missing a fill, should the stock reverse just shy of resistance. However, I wanted to get this chart out asap due to the potential for a fast move in VHI, should the momentum traders start piling in. As such, consider setting your sell limit order slightly below your preferred target level(s). Stops should be dependent on one’s unique cost basis and preferred target(s), as well as their own trading style. Remember, limit orders to buy & sell are usually preferable in thinly traded stocks however, when trading volumes pick-up, like they have on VHI today, market orders can be used I’ve noticed the spread running tight from about 1-3 cents so far today.
Although the VHI long was recently removed from the Active Trades category as it had exceeded the lower-most suggested stop, I’ve continued to monitor the stock and have noticed that it is moving higher on unusually large volume today. As mentioned in the previous update, the recent volume patterns are indicative of a possible selling climax, which could indicate a lasting bottom in the stock. As per the previous notes, this is an highly volatile, thinly traded stock that has been in a relentless downtrend, largely due to insider selling from the Harold Simmons foundation.
Harold Simmons was the company’s CEO who passed away in December. His foundation owns almost all the shares of VHI. From the looks of the recent continued selling by the Foundation, it appears that the supply/demand equation may have reached an equilibrium point around the 5.00 level as the continued insider selling in recent sessions has been met with nearly an equal amount of buyers to soak up the supply. Maybe this is just a temporary pause in the downward spiral of VHI although recent volume patterns may indicate otherwise. The previous trade was considered stopped out when it fell below the 5.50 resistance level, which is now resistance. As a break above that horizontal resistance level would also coincide with a break above the ascending channel on the daily chart, VHI will be added back as an aggressive long trade setup on a break above 5.50 with new price targets TBD if an entry is triggered. On a scale of 1-10 with 10 being the most aggressive, this trade would certainly be a 10 so as always, DYODD and consider adjusting your position size accordingly if you decide to take it.
The first chart below is the 60 minute chart of GDX posted yesterday in which I listed my pullback targets. As GDX was still solidly entrenched in an uptrend at the time, I had placed the top of Fibonacci retracement at the top prices at that time, figuring that a near-term top wasn’t far away. As such, the key retracement levels that I am currently targeting, the 38.2% & 50% levels, came in just below horizontal support levels on that chart. Following the marginal new highs put in following today’s gap higher in GDX, I have adjusted the Fibs to reflect what I now feel more confident to be the near-term top in the gold miners that I was looking for and as you can see in the second chart below, today’s updated 60 minute GDX chart, those key Fib retracement levels of 38.25 & 50% now come in right at horizontal support levels, something that I look for to provide additional validation for a support level and/or price target. The third chart is a daily chart of GDXJ (Junior Gold Miners ETF) with some likely pullback targets, the first of which being Thursday’s gap which triggered the impulsive breakout above the primary downtrend just as with GDX, GLD, $GOLD, etc…
I wish that I could say that I had a strong preference for which support level is likely to be the final one hit, assuming of course that I’m even correct about a short-term top being put in place at this morning’s highs. I will say that I am leaning towards a pullback to the S3 level on GDX, which comes in around 24.80, but I wouldn’t be surprised to see GDX find support & go on to make new highs from any of these levels. Should GDX continue lower to find support at only the first or second support levels (S1 or S2) before moving sharply higher, that would indicate a very strong bid underneath the mining stocks and bode well for the intermediate outlook for the sector. As usually, my plan will be to gradually & systematically add back the exposure to the mining sector that I recently reduced as my profit targets were hit over the last week, focusing on the technicals of both the sectors (GDX, SIL, GDXJ, etc…), the metals (GLD, SLV, $GOLD, etc..) and of course, any specific individual mining stocks that I plan to trade or recycle back into after booking profits.
AUY (Yamana Gold Inc) will be added as an Active Long Trade & Long-term Trade idea around current levels (8.10ish). As this is an attempt to catch a bottom in the stock which has now fallen over 60% from its peak just over 6 months ago, AUY should be considered an aggressive trade. That, coupled with the inherent extreme volatility in the gold mining stocks, favors a downward adjustment in position sizing on this trade (as little as 1/2 – 1/4 my typical position size).
What I like about AUY, other than the fact that I continue to believe the gold mining sector may still likely be in the early stages of a new bull market that began in late December, is how the stock has broken below this key weekly support line. This breakdown may likely prove to be a bear-trap (i.e.- a false breakdown), with prices moving sharply higher if it does not stick. It could take a week or so for prices to close back above the weekly support line and if so, a higher probability, more conservative entry (or add-on to an initial position taken here) would be on a weekly close back above that level (roughly 8.40). Another technical development supporting the bullish case is the fact that we have positive divergence either in place or forming on the weekly, daily & 60 minute time frames.
Once again this is a potential high risk/high reward long-term trade idea. With the first target (T1) 24% overhead and the final target (T3) about 55% higher, one must factor in the total dollar loss if the trade does not work out. Using a preferred 3:1 R/R ratio, that would allow for a stop about 8% lower if targeting T1 and about 18% lower if targeting T3 (edit: originally incorrectly listed the 18% suggested stop for T2 instead of T3). Of course tighter stops can be used but when trading the mining stocks, I find that trading a smaller position size to accommodate for more liberal stops significantly reduces the chances of being prematurely stopped out on trades that go on to hit their profit targets as the daily price swings in the mining stocks are unusually large.
XVX.TO is an Active Long & Long-term Trade idea that was first added as a setup on Jan 17th (click here to view the previous notes if interested in this trade). Since that last post, the $CNDX (TSX Venture Composite Index) did go on to trigger an entry on the trade by clearing the 980 resistance level. From there, the exchange gained about 7% before coming back in to make a successful backtest of the 980 level (resistance, once broken, becomes support). All-in-all, the price action on the $CNDX remains constructive and with prices still trading above but close to that 980 support level, still offers an objective entry or add-on for a long-term trade or investment in the XVX.TO. To reiterate, my preference is to use the $CNDX chart for timing entries & exits in the XVX.TO. Updated daily charts below.