Gold Mining Stocks

Timberline Resources is holding up quite well above its 50 day moving average (red line) and the recent 3 day decline has been on dramatically lighter volume.  The gold price has made a nice upside reversal reaction as well as the GDX mining stock index and I suspect that both will retrace upwards a bit this week and then move into longer consolidations perhaps 2 to 4 weeks long.

TLR could be forming a small handle of a cup and handle type formation here.  A large surge in volume is really going to be the only clue of a breakout type move out of this pattern.  But there is also the risk it may just flat line for the rest of December as it has done in the past.

Still worth keeping an eye on TLR in my opinion as it is a nice upward trending gold stock in a basically sideways consolidation with low volume decline days and big volume accumulation days.

Gold is getting hit bad today and if you look at the dollar amount on kitco.com it looks a lot worse than if you just focus on the price chart.  The GLD ETF was overdue for some type of consolidation and using the employment report news today seemed like a good enough excuse for the big money crowd to slam it down.

Right now my take is that we are going to enter some type of sideways consolidation perhaps a month long before going higher again.  I say that because I think today’s price destruction in the GLD combined with the huge volume should be enough damage to start a trend change/ and or consolidation.

The chart above is the GLD ETF in the 2007 to 2008 time frame.  The red arrows point to heavy selling days that damaged the up trend enough to get the GLD into consolidation mode for a while.  So I am expecting something similar to what occurred in the chart above.

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Before I even begin to talk about CVRG let me say this.  CVRG is a PINKSHEET penny stock that is extremely speculative and has all the normal disadvantages that normally come with pink sheet stocks.  I consider penny stocks in some ways less risky than options because they do not have time decay, premium and expiration, but that does not mean they still cannot cause major heart ache.

I made a decision a while back not to talk too much about pink sheet penny stocks here at BestOnlineTrades because they are an entirely different animal and just do not seem appropriate to mix in with all the other ‘big board’ topics I cover here.  But occasionally I make an exception and I am doing that now.

So having said that, and since I have free editorial reign here at BestOnlineTrades I want to tell you about CVRG, Converge Global.  It is a pinksheet gold mining penny stock.  The ONLY reasons I think CVRG could become a nice play for the next 2 to 3 months are because of the technical setup that exist within CVRG and also the backdrop of a parabolic exploding gold and silver price.

We have already seen a number of gold mining penny stocks blast higher in recent weeks and I expect this trend to continue.  SGCP (Sierra Gold Corp) up 900% from its recent lows, BRYN (Bryn Resources) up 4042% from its recent lows, KATX (Kat Exploration) up 1035% from its recent lows.  So clearly speculation is ripe and the gold mining pinksheet penny stocks are on fire and in heavy demand.  Part of the reason for this is simply a matter of supply and demand.  There are so few gold stocks to choose from that what you will see is ‘gold money’ funnel more easily into the micro cap gold mining plays on pure speculation and lack of other choices.

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The gold price move seems to be well underway now and today we saw the US Dollar Index have its worst one day drop since July 31st.  The dollar could be entering free fall mode for a week or two that forms some type of capitulation low.  Gold is overbought now based on RSI levels, but at this point I am not seeing any negative divergences.  So it could get a few drops here and there and maybe even form some type of consolidation pattern only to take off again later.

The gold bulls live above the 70 RSI level and they should control the show for at least a couple more months.  The way the gold parabolic blow off and also the broad market are setting up is for a big finale of a run that coincides with the US Dollar Index hitting support near the 70 range.

In the mean time TLR continues to behave quite well and now looks poised for the classic ‘15 minutes of fame’.  Well actually it will be more than just 15 minutes.  Today is probably the first day of a 5 to 10 day rally in TLR.  I am looking for 2.00 as a target to exit.  I think it may have a decent chance to get there within the next 5 to 10 trading days.

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It appears that the gold price is setting up to move into a parabolic type advance now.  There was a lot of sideways cause built up since the March 2008 beginning of pattern and now some of that cause is being used up but I suspect it is nowhere near being finished yet.  I would expect at least another three months of upside price movement.

There may be some complex corrections of maybe half a month in duration during the advance, but overall I expect the trend to be persistently up.  It would not make any sense at all for the gold market top top here at this point given the large amount of cause building that occurred since March of 2008.  This is why I believe any top calling at this point is premature.

During the later stages of this type of advance it would seem gold fever can once again come into play causing massive speculation and bidding up of the most speculative stocks.

The 1 dollar and change mining stock I mentioned before TLR Timberline Resources continues to hold it’s 50 day moving average and the chart looks like it wants to get an upside breakout going quite soon.

I am also following a couple pinksheet penny stocks in the gold mining sector that could see massive speculative gains on this gold mania run.  They are CVRG (converge global) and KATX (Kat Exploration).  Both of them trade on the pinksheets and are just a few pennies a share.  CVRG has quite a good chart structure and I would not be surprised to see it test the .445 swing high perhaps by March next year. 

During the entire gold bull market there are going to be lots of opportunities to take advantage of the mass speculation stages of the bull run.  They don’t happen all the time but when they do it is worth it in my opinion to ride along for a while with the speculative fever.

Seasonally, gold should be strong right into the end of this year and I would expect that strength to support the mining sector as well.

TLR Timberline Resources did an important test today of support and swung down to test demand just above the 1.00 level.  The test passed with flying colors as we say almost a complete reversal and close near the top of the range.

I think TLR still has more work to do but it appears to be in a falling wedge type pattern.  I really don’t want to see it break below 1.00 and stay down there as that would imply a much longer type consolidation.

Best case scenario is staying within this pattern and then getting some kind of upside breakout near Thanksgiving week. 

I made a bad mistake of getting into TLR before it gave a real breakout signal.  I should have waited for it to break the down trendline near the 1.29 level before jumping in.  I really should not be making that type of mistake anymore because you can see what it can lead to: getting trapped in a stock  and having to sit through draw down and doubt.

Anyway, so far still constructive and looking for sideways to slightly down action. 

I decided to go long TLR Timberline Resources right now for a while.  This is a trend trade and I intend to hold it through the end of this year.  I expect the gold price to maintain a bullish bias going into the end of the year and into the first quarter of next year and that fact alone should make TLR a no brainer at this point.

TLR has a beautiful up trend, beautiful volume accumulation and a nice longer term chart.  Even if I am wrong in the short term, longer term (3 to 6 months) I expect TLR to be much higher from these levels.

It has been hard finding ‘safe’ long candidates going into the end of this year.  While there is no such thing as ‘safe’ in the marketplace, there are some trades that make you feel as though you have the wind at your back and TLR falls into that category right now.  Last time I checked gold was still in a bull market and is the only REAL bull market that I know of right now.  The broad market is in a bull market now too but it is in a corrective bull market in the context of a much larger bear market that began in the year 2000. 

The broad market will likely head higher into the end of the year as well, but the problem is it has been very tricky finding really solid long candidates in the broad market (at least for me it has been) because many of them are so over extended.   Plus I just don’t trust the broad market advance as much as I trust the gold market advance. It is all about having a good setup and finding a good entry.

The GDX Gold miners index is supporting the case of a massive topside breakout to new all time highs based on the longer term charts I am looking at.  So mining is going to be in play big time going into the end of the year and I fully expect TLR to join that camp as well.

Plus from a psychological perspective I have noticed that CNBC and other media have started to catch on to the gold euphoria.  It is not at peak levels yet but I am sure it will be there come March of next year.  By then it will probably become accepted that gold is only going in one direction. UP.  And that people need to buy into it.

We need to see some REAL gold fever take hold.  It has been a long time in wait.  So I am sticking with TLR as a trend trade for a while.  In the meantime I will be on the lookout for other good setups but TLR takes the cake for now.

The GDX today traded 23.3 million shares in volume which is an all time record.  Granted the GDX ETF has not been trading for 10 years, but I still think this is a significant fact today given how slow everything else is these days.

The GDX also blew out the swing highs from 29th May 2009 to June 2nd on record advancing volume.  That is a huge positive signal that the levels that were reached today will eventually be exceeded even if we do pull back down hard tomorrow and early next week.

I haven’t really written too much about individual gold stocks here at BestOnlineTrades but soon I think it is high time I start doing so.  There are plenty of gold stocks that trade between 2 to 10 dollars that may be outstanding buys right now.

One of the reasons I have been reluctant to mention them is because they tend to have really labored trading for long periods of time.  Yes they do get big sprints upwards, but they do not seem to last too long and big retracements usually follow.

But once in a great while I think they can really buck that trend and trade persistently higher and move in almost vertical fashion.  I am not saying that is going to happen right now, but it is at least a good possibility once things get past the ‘warm up stage’ in the gold price advance.