Traders tiring of the volatility laced beatdown in equities are finding a smoother ride in gold and the ecosphere of trades that accompany it. Take gold stocks for instance. When the S&P 500 peaked back in September, the gold miners industry sat down across from stocks on a teeter-totter. Ever since then, pain in equities has brought pleasure to miners and vice versa.
From a price perspective, the Gold Miners ETF (NYSE:GDX) is looking up. Its bullish turnabout has been orderly with its price now up 17% since carving out a 52-week low at $17.28. The ascent carried GDX back above its 20-day and 50-day moving averages and both are now rising beneath the price in a supportive fashion.
If the inverse relationship between GDX and the broader stock market holds (and I suspect it will), then bullish plays in gold stocks are worth a shot for traders seeking safety.
We’ve scoured the space and here are three of the best ways to play the emerging strength in gold stocks.
Gold Miners ETF (GDX)
For those looking to sidestep the stock-picking game altogether, a diversified bet using the Street’s most liquid gold miners ETF should do the trick. By betting on GDX directly, traders avoid the quarterly gaps that arise in individual stocks following earnings announcements. Not to mention the fact that the overall day-to-day volatility is usually less in the exchange-traded-fund versus its constituents.
As mentioned above, the technicals for GDX have turned bullish and should remain so until the equity bear market ends. With an implied volatility rank of 67% and its low $20 price tag, selling puts seems like a stable cash flow play to capitalize here.
Sell the Jan $19.50 puts for 42 cents.
Barrick Gold (ABX)
Among the top holdings, Barrick Gold (NYSE:ABX) boasts one of the best looking price charts. Since bottoming in September, it has been an industry leader rising 45% compared to GDX’s 17% gain. The relative strength is proven and suggests ABX may well continue to lead the pack if gold stocks remain in vogue.
I particularly like how ABX has already climbed back above its 200-day moving average, which makes its recovery far more mature than many of its peers. On Friday, the stock was able to break out of its two-month base signaling the next ascent is now upon us. Look for a return to the 52-week high of $15.52 over the coming weeks.
To capitalize, either buy the stock or sell the Jan $13 puts for 28 cents if you’re looking for a high probability cash flow play.
Agnico Eagle Mines (AEM)
My interest in Agnico Eagle Mines (NYSE:AEM) is due primarily to the groundswell in volume seen last week. The buying stampede is accelerating its nascent uptrend and has now carried AEM back above its 200-day moving average as well as key resistance at $38.
The large volume suggests institutions are accumulating shares, which should continue to buoy the stock moving forward. The challenge with deploying new trades in AEM is its overbought status. It’s now up six days in a row, so some consolidation or a pullback would be ideal to set up a lower-risk entry.
Keep it on your radar and consider buying into any weakness over the coming days.
As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.
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