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3 Gold Stock Rallies Destined to Fail

Tyler Craig

Stocks find themselves in the heart of a bull run that’s destined to gallop into year-end. The one potential hiccup, of course, would be the much talked about tax cut bill somehow not making it across the finish line.

But its passage seems inevitable, and stocks are responding accordingly. Unfortunately for yellow metal lovers, the mad dash for equities is leaving gold stocks and their ilk out in the cold.

Since peaking in early September at $128.32, the popular gold exchange-traded fund — SPDR Gold Shares (NYSEARCA:GLD) — has tumbled 7.2%. Gold miners have followed in-kind with downtrends gripping them one and all.

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Last week’s FOMC announcement breathed new life into the space, but with a downtrend already looming large, it’s a rally that seems destined to fail.

If nothing else, the recent rebound is providing a much better spot to deploy bearish trades in the gold space. I’ve surveyed the area and here are three of the best plays.

3 Gold Stock Rallies Destined to Fail: VanEck Vectors Gold Miners ETF (GDX)

Source: OptionsAnalytix

One of the simplest ways to capitalize on an industry-based theme is to, well, trade the entire industry. No need to pick winners and losers when you can short the whole space via a liquid exchange-traded fund.

For gold stocks, we’re talking about the ever-popular VanEck Vectors Gold Miners ETF (NYSEARCA:GDX). Last Wednesday’s post-FOMC announcement pop carried GDX directly into potential resistance in the form of an old support level and the descending 20-day moving average.

Thursday and Friday’s trading sessions delivered a doji plus a bearish candlestick showing buyers had little resolve to stage a breakout. I think the fund will remain under pressure for the time being, particularly if buyers continue to bid-up more traditional equities into year-end.

With implied volatility in the tank, long puts are worth a shot. Buy the Feb $23 put for $1.50.

3 Gold Stock Rallies Destined to Fail: Newmont Mining Corp (NEM)

Source: OptionsAnalytix

Traders looking for a higher octane route for betting with gold stock bears should consider Newmont Mining Corp (NYSE:NEM). Not surprisingly NEM’s behavior is mimicking that of GDX. It too is in a downtrend complete with descending 20-day and 50-day moving averages. Before last week’s FOMC-inspired rally, NEM shares were also below the 200-day moving average.

For all its fury, the recent rally failed at the 20-day moving average. In fact, Friday’s trading session ended with a dark cloud cover candlestick on heavy volume to boot. This suggests the baton has passed from buyers to sellers and the path of least resistance is now, once again, lower.

Buy the Feb $37 put for $1.90.

3 Gold Stock Rallies Destined to Fail: Goldcorp Inc. (USA) (GG)

Source: OptionsAnalytix

Goldcorp Inc. (NYSE:GG) shares have been plumbing the depths for months now. Earlier this month it suffered a critical breakdown, finally breaching a pivotal support level which had held for the entire back half of the year. Not surprisingly, the support failure delivered a high volume swoon that ushered GG to a new 52-week low.

Although last week’s rally was a rousing, high volume candle, all it did was return GG to its old support level. And the odds favor such a significant floor to at least provide resistance on its first re-test. Friday’s bearish reversal candle seems to confirm that.

Buy the Feb $12.50 put for around $1.10.

As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want more education on how to trade? Check out his trading blog, Tales of a Technician.

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