Gold stocks are working. Try this trade idea on Wheaton Precious Metals ($WPM) (September 08, 2020)


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The market is in sell-off mode; I will just look real quick at this. You can see we’ve gone from a hell of overextended to right back at the 50-day moving average. Typically, you like to see pullbacks to the 50-day moving average but you don’t like to see implosions to the 50-day moving average.

This is not your typical sideways consolidation, sideways to down move, and then finally the 50 catches up to it. The 50-day moving average did not catch up to this chart, the price chased the 50-day moving average like a dog chases a bus and the bus had to stop right at the corner; boom! And so I would expect this to take a while before we get any kind of a move higher.

What I am actually seeing is, I am seeing kind of some solid trading, some solidifying, so to speak in support on a lot of the homebuilder stocks. And also Gold ( NYSEARCA: GLD ), GDX ( NYSEARCA: GDX ), the gold miner stocks where they haven’t really sold off. Look at the difference in this test here ( NYSEARCA: GLD ). This test here of the 50-day moving average versus, say, this one ( NASDAQ: NVDA ), this is super steep. Then this one ( NASDAQ: QQQ ), super steep. Tesla ( NASDAQ: TSLA ); hello, so we know this.

On some of these like the homebuilding ( NYSEARCA: XHB ) stocks, they are just kind of drifting lower. Lennar ( NYSE: LEN ), Toll ( NYSE: TOL ), DHI ( NYSE: DHI ), we go on and on. We have been stopped out of our positions on these, for one of them a 20 percent profit but the others, slight profits or slight losses so we are out of these. But I really feel like they are starting to set up to give us some different entries.

But if you look at the Gold ( NYSEARCA: GLD ) stocks, I am looking at these as almost kind of a right here right now situation. We can see on the GLD ( NYSEARCA: GLD ) here, it’s pulled back. It has gradually drifted sideways, lower highs, but basically sideways while the 50-day moving average has had a chance to catch up to it. So we are kind of at an inflection point here where what we are looking for are higher prices.

So I look at this and then I start looking at some of the Gold ( NYSEARCA: GLD ) stocks and one that some of the members in the forum mentioned this morning, I call it Wampum, I don’t know why maybe it’s my Native American background or something, but it’s Wheaton Precious Metals ( NYSE: WPM ). And if you look at today’s low, it’s 49.66, this is where the price is and this is where the low is.

If we just kind of move this sideways, we get similar support right back here. This is well above the 50. This is basically below the 50. So this is a defined risk trade, where you are buying the stock here and your approach is that you can see the stock, if the rest of the Gold ( NYSEARCA: GLD ) sector moves, you could see the stock starting to break out, move out of this, what could basically turn into is like a long handle. This would be the cup, this type of thing here, and then you have got a really long handle.

By the way, another way you can look at it, and this is kind of using fractals I guess you could say. But you could say, “Well, actually this is the cup here and then this is the handle here.” Or we could say, “Well wait., this was the cup here and this was the handle, or this was the handle.” You see my point, in a lot of different time frames we are seeing the same thing. I like that type of thing because what it shows is a stock that has got good buying and then a healthy consolidation, and good buying and a healthy consolidation. Right now we’re in the consolidation part and it’s been going this way for quite a while.

And so I think you buy the stock here and then keep your stop just a little bit below 49.66. That gives you a defined risk trade. You are risking, say, 7 percent and so the number of shares you buy is the number that matches your maximum acceptable risk. If I take a 7 percent loss on my position what does that amount to in dollars? Well, how many shares do I buy so that if I do take the 7 percent risk I don’t exceed my maximum loss?

That’s how you have got to be doing it. You can’t just be trading this stuff by gut instinct and feel. I tried that for many years and it worked great when the market was awesome. And when the market wasn’t awesome it absolutely sucked. And so only when you start having a specific process that you can apply will you really grow as a trader. So this is kind of meat in my process because I’ve got a defined risk on a stock that is showing a base here, so you might try that.

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