With both GDX (Gold Miners ETF) & SIL (Silver Miners ETF) now solidly inside the thin zones, the chances for a continued move higher towards their respective targets is good. SIL gapped just above the top of the R1 downtrend line at the open today and hasn’t looked back. With prices solidly inside the thin zone, a continued move towards the top of the zone in the coming days is likely. Any pullbacks to the R2 level would offer an objective entry or add-on to the trade. GDX has also moved impulsively higher, as was mentioned would likely be the case, once it took out the 22.50 resistance at the bottom of the thin zone. As with SIL, any pullback to resistance on GDX (the minor resistance or the 22.50 area) would also offer an objective long entry or add-on to an existing position with a stop below 22.30 or higher, depending on one’s average cost.

As a seasoned trader, my preference is trading the most bullish setups within a sector vs. trading the sector ETF as the gain potential is much greater. Of course this can be a double-edged sword, especially if only trading just one or a few stocks within the sector. I’ll typically use a shotgun approach by trading multiple names in a sector. To do so, I must first determine how much capital I want to commit to the sector and then determine (or guesstimate) how many individual positions I plan to take if/when fully committed. From there, I can determine how much capital to commit to each individual stock.

While this strategy certainly has it’s benefits, mainly the chance to outperform the sector ETF, there are some potential disadvantages such as complexity (following multiple charts/trades vs. just one) as well as the increased downside risk that comes with the increased upside potential. Should any of my individual mining stocks experience a large news or earnings induced gap against the position that exceeds my stop, that larger-than expected loss can substantially impact my overall returns in the sector. The best way to mitigate this risk is through diversification (taking numerous positions).

One final note on this topic: when finding a sector poised for a quick move, as I believe the miners are, at times I will take positions in the tracking ETFs, especially initially, until/unless I have found enough individual stocks to trade. Recently I’ve only added three mining stocks (SSRI, AUQ, & GPL). I am currently long the first two, still awaiting a breakout in GPL, but I also have positions in GDX & SIL which I plan to sell down if/as I add more individual mining stocks to my positions.