Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Relative Strength Analysis is Important for Gold Stocks

Commodities / Gold & Silver Stocks Oct 26, 2011 - 01:53 AM GMT

By: Jordan_Roy_Byrne

Commodities

Relative strength is defined as the measuring of one market against another over a specific period of time. Relative strength is an important concept in any bull market. After all, if you’ve found the bull market why not find the leaders? We consider relative strength particularly important when analyzing gold and silver stocks. There are hundreds of gold and silver stocks and despite the larger trend, they won’t always trend in the same direction. As a result, you need to be a stock picker in this sector if you want to earn the best returns.     


How do you apply this analysis?

We use GDX and the HUI as our indicator for the large gold stocks. Lets take a look at GDX. The market has been in a trading range for the past year. A weekly close above $58 should confirm the bottom.

When the market is in a trading range, you need to buy relative strength and avoid the weak performers. The stocks that are weak can break support while the strongest stocks will either trend higher or remain comfortably above support. The present time is a perfect opportunity to employ this analysis. GDX remains in a long consolidation though may now be heading for a breakout in the next few months. As an investor you need to be aware of the strongest stocks and the weakest stocks.

Let me give a few examples. 

A well known and well supported company very recently saw its stock plummet more than 20% on account of bad news. Production at one of its mines is ceasing indefinitely. Yes, this is bad news and cannot be predicted. However, we completely avoided this company due its poor relative strength. The shares were in a clear downtrend for most of 2011. As a result, its long-term moving averages were flattening and the shares fell below the moving averages. Sure, the bad news was random. The stock could have put in a bottom. However, it’s consistent poor performance for the majority of the year was a warning sign.

On the other side is one of my favorite companies, currently up 34% year to date. This company has great management and its shares benefited from a recent resource increase at one of its projects. The shares have trended higher for most of the year though declined almost 30% in September, yet remained above support from early 2011. As we pen this the shares are within 10% of a new all-time high and would likely benefit from a further move higher in GDX.  

In this type of environment of a long and large consolidation one needs to employ relative strength analysis to find the winners and avoid the losers. This will not always be our strategy. If and when GDX breaks to a new high and the sector gains big momentum then we will want to find the undervalued companies that are starting to move and have huge upside potential.

It has been a difficult year for the gold and silver stocks as a whole. However, there have been winners here and there. In our premiumservice we’ve focused on relative strength and as a result our performance has crushed GDXJ and GDX in a difficult year. Now that GDX appears to be bottoming, investors need to choose the stocks which will benefit. The stocks with the best relative strength will be the first to breakout and will perform the best over the next couple of months. That is where your performance should come from. At the same time, we are recommending a few juniors and are keeping our eyes open for the big winners of 2012.

If you’d be interested in professional guidance then we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT
Trendsman@Trendsman.com
Subscription Service

Trendsman” is an affiliate member of the Market Technicians Association (MTA) and is enrolled in their CMT Program, which certifies professionals in the field of technical analysis. He will be taking the final exam in Spring 07. Trendsman focuses on technical analysis but analyzes fundamentals and investor psychology in tandem with the charts. He credits his success to an immense love of the markets and an insatiable thirst for knowledge and profits.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in