Mining Leaders Have More Room To The Downside

Back in August of this year, I shared with you the comparison charts of gold and silver stocks. The precious metals hit the new highs before that, and so did the mining stocks. After that, the prolonged correction of underlying assets (gold and silver) put pressure on the mining stocks. Below is the chart showing you the 6 stocks’ behavior.

Chart 1: Top Mining Stocks: The Leaders Lost The Most

Chart courtesy of tradingview.com

The 3 top gold stocks by past performance:

1. Barrick Gold Corporation (NYSE:ABX) (orange)
2. Newmont Mining Corporation (NYSE:NEM) (red)
3. Agnico Eagle Mines Limited (NYSE:AEM) (chocolate)

The 3 top silver stocks by past performance:

4. Coeur Mining Inc. (NYSE:CDE) (blue)
5. Hecla Mining Company (NYSE:HL) (purple)
6. Pan American Silver Corporation (NASDAQ:PAAS) (green)

There are no winners from the start of August, all of the stocks showed negative dynamics, although, to different extents. It looks like my anticipation of the imminent fall of the leaders is coming true. The most inflated gold stock (Barrick Gold Corp. (ABX))dropped the most amongst it peers by -20%. And the silver leader (Coeur Mining Inc. (CDE)) collapsed even more by -24%, though, to be fair, it hit the +500% mark before that from the bottom in December 2015 and is still the record holder to date. These two stocks lost the most for the period and the single reason being that they were the most inflated in the sector; they had room for a fall to even worse numbers and the bottom buyers still have a fat profit margin reserve.

The Agnico Eagle Mines Limited (AEM) was the third best performing (+118%) gold stock and it surprisingly lost the least at -7%. Among silver stocks the Pan American Silver Corp. (PAAS) had the smallest drop at -10%, what a coincidence! It was also the third by performance among silver stocks as was AEM among gold stocks and they both lost the least. Another case of numbers magic!

Below are the separate charts of the leaders of both performance and “anti-performance” ratings for your attention. Let’s start with the record holder.

Chart 2: CDE Daily: Signs Of Soon Reversal

Chart courtesy of tradingview.com

This stock is a pure brilliant of this year as it has the rocket power. I warned you in August that the stock could decline as the AB/CD segments were finished and a significant correction should appear on the chart once the price triggers support and the RSI dips below the 50 line. The falling orange channel contours the correction as mentioned earlier.

We have second support from the same area of the chart at the $10.76 mark: 1) the downside of the orange channel and 2) the 38.2% Fibonacci retracement level. I added a blue vertical resistance line to show that the price is going to be squeezed from the converging support and resistance. Fairly soon we should witness the breakout of the price. The RSI has higher lows despite that we have lower lows on the price chart; it means that there is already a divergence in place between the price and the indicator. Thus, I think that the price is going to break to the upside as shown in the gray arrow on the chart.

If the price bounces off the 38.2% Fibonacci level, it will indicate a very strong bullish sentiment for this stock. The first barrier would be on the upside of an orange channel at the $13.8-14.0 level. Conservative players would wait and see if the price could crack that resistance before any decision on the long position.

Chart 3. ABX Daily: Another Drop?

Chart courtesy of tradingview.com

The gold stocks leader has already hit the 38.2% Fibonacci level and mapped the short-term consolidation (highlighted in blue) within the larger degree correction highlighted in the two diverging orange trend lines. I think that we are going to drop one more time to the double support area where the 50% Fibonacci level meets the orange support line as highlighted with the red arrow. The short-term consolidation has a confirmation on the RSI sub-chart also highlighted in blue. The current weakness of the stock is indicated by the RSI, which is below the 50 level.

We should wait and see if the support would repulse the drop before any attempt to jump long. An expanding structure of the correction puts the high risk for the trade as it can transform into a more complex structure with the continued consolidation, which in simple words means more time and more patience. Only the decisive break above the $21 mark beyond the upper orange trend line can confirm the resumption of the bullish trend.

Below are the selected fundamentals for these stocks for your information.

Table 1: Fundamentals

Source: finviz.com

Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.