Gold miners and the materials sectors are exhibiting interesting looking charts. Below is a chart of the iShares global gold equities ETF. The recent breakout through the base neckline at around $21, followed by the pullback to the neckline is something to take note of. Stocks that break out often “test” their neckline breakout point- so I view this pullback as healthy so far. I would also be ok with a very temporary pullback to the 200 day MA which sits around $20.50 right now–the neckline noted on the chart was broken today. If it can hold at or above that 200 day MA level, the gold miners look like a place to be.
The materials sector, illustrated by the iShares materials ETF chart below, looks similar to the gold miners chart. Thats because there are some gold miners within this sector – currently near 40% of the mix. A similar neckline breakout and pullback appear to be in play here. The materials sector will have stronger support at its neckline at almost exactly $18 due to the 200 day MA support at almost exactly the same $18 price level.
Watch these sectors for support at the levels noted, and if they hold, consider a sector play or buying an individual stock within them. Please note that a breakdown below the noted support levels (breakout points and / or 200 day MA’s) would suggest a “failure” of the stock to hold its breakout, and signal a potential bearish movement to come. Being sensitive to broad market movements (i.e. they are higher beta, “risk-on” types of securities as discussed last week: here) these two sectors should be traded within a broad market uptrend. If the broader market trend weakens, avoid these sectors.
Disclosure: I do not hold positions in these ETF’s, but may initiate a position in the near future in one or both securities.
Keith on BNN
I’m on MarketCall Tonight on Friday October 5th at 6pm — start your Thanksgiving weekend off with some technical analysis!
Great post Keith. I’ve been buying this sector since mid-May because of the extreme bearish sentiment & oversold RSI, XAU:Gold ratio on support and P/NAV & P/E ratio’s at half their 10+yr average. Add QE3 to the mix and you have a great setup here.
This post did a nice analysis back in May: