Quick Traders at Natural Selection Self-Investing are aware that despite the recent weakness in the gold mining sector, I have kept many of the strongest gold mining companies on our weekly watch-list. The methodology that we use with our trading system involves trading charts that have a positively sloping 50 period moving average (pma), which indicates that the stocks we are trading are in a positive trend. We can either buy emerging or established trends depending on where a company's chart is positioned within its trend life cycle. Looking at a daily chart of the TSX gold mining index, it appears that the trend is in fact rolling over.
We can see here that the 50 day moving average (dma) is flattening out, while the price is making lower highs and lowers lows and is currently trading below the 50 day moving average. According to our system we would have sold this chart (which we did) and would have removed it from our watch-list. So why is it that I still have many gold mining stocks on our list?
The reason here is two fold. First, there are many gold mining stocks that are much stronger than the gold mining sector chart shown above and these may continue higher regardless of what the sector as a whole does. Second, it is sometimes necessary to consider the bigger picture to determine where the sector may be headed next. In this regard, the weekly time frame can offer additional insights.
We can see here that the situation is exactly the opposite as what we are seeing on the daily time frame. The 50 week moving average is strongly positively sloping after coming off of an extended bear market. A bottom was made in September 2018 and things really got rolling in late May 2019. During the subsequent three months, the sector gained 53% and eventually started to roll over in August 2019. Given the explosive move higher over such a short time period, it is not difficult to see that the sector was due for a meaningful correction.
So where are we headed now? The reality is that no one knows what is in store for the gold mining sector but I can tell you that with many global economic indicators flashing red, there is a reasonable chance that this counter-cyclical sector has at least another leg higher. As indicated on the weekly chart above, we are still trading above the 20 week moving average and the correction so far has been shallow. Many individual miners have corrected deeper, while some have corrected very little. Our goal here at Natural Selection Investing is to identify charts that are ready to move higher, and we will continue to do that by re-examining our mining stocks on a weekly basis.
In the meantime, I have added many non gold mining stocks to our watch-list so we can continue to trade while we wait for the mining sector situation to resolve itself. As subscribers already understand, the goal with this trading system is to trade what is already trending up rather than waiting around endlessly for our favourite sector to turn around. Regardless of whether gold miners have another leg higher or not, we will continue to find stocks that are ready to break out or are already positively trending.
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