Over the last few days the Tickeron A.I.dvisor has generated several signals that point to a downward move for the gold mining industry.
First there was a signal on the Direxion Daily Gold Miners Index Bull 2X (NYSE: NUGT) that come from the momentum indicator and shows the odds of success at 89%. There were 103 similar cases for backtesting and 92 of them proved successful.
This indicator may be signaling that NUGT's price has further to drop, since it fell below its price logged 14 days ago. Traders may consider selling the stock, shorting the stock, or exploring put options. A.I.dvisor backtested 103 similar cases where NUGT's Momentum Indicator fell below the 0 level, and 92 of them led to a successful outcome. Odds of Success: 89%.
The same day that signal was generated, there was a bullish signal on the Direxion Daily Gold Miners Index Bear 2X (AMEX: DUST). Seeing a bearish signal on the bullish ETF and a bullish signal on the inverse ETF makes sense, in fact, you would expect such a thing.
This indicator may be signaling that DUST's price has momentum to move higher, since its current price exceeds the price logged 14 days ago. Traders may consider buying the stock or exploring call options. A.I.dvisor backtested 100 similar cases where DUST's Momentum Indicator exceeded 0, and 86 of them led to a successful outcome. Odds of Success: 86%.
After seeing these two signals, I started looking at the gold mining group on the Tickeron screener. There are 19 stocks in the group with the most notable companies in this group being Newmont Goldcorp Corp (NYSE:NEM), Barrick Gold Corp. (NYSE:GOLD), Wheaton Precious Metals Corp (NYSE:WPM), Kirkland Lake Gold Ltd (NYSE:KL), and Kinross Gold Corp. (NYSE:KGC).
Companies in the gold industry are engaged in exploring and mining for gold. Gold is largely used in jewelry, art and it has some industrial uses as well. Gold is often viewed as a safe harbor investment and the metal itself tends to move higher when the global economy is in chaos.
Breaking down the companies in the group, I took note that 15 out of the 19 companies had also received bearish signals from the momentum indicator in the last three days. That coincides with the bearish signal on the NUGT ETF. All 15 of the signals showed odds of success of at least 55% and 10 of them showed odds of success of over 70%.
From the technical analysis screen I jumped over to the Fundamental Analysis screen to review the fundamentals of the 19 stocks to see if the bearish signals matched up with the fundamental ratings.
There are six different indicators that can be scored and in the case of the stocks in the gold mining group, 17 of the 19 had more negative indicators than positive ones. Some of the indicators could be neutral, so my statement doesn't mean that all 17 of those stocks had four negative signals and only two bullish signals. Some were two bearish to one bullish reading. For the two that didn't have more negative readings than positive ones, one stock was tied at two to two and one showed three positive and only one negative (Harmony Gold).
One particular indicator from the fundamentals that I use extensively is the SMR Indicator. The indicator represents sales growth, profit margin, and return on equity. In the case of the 19 stocks in the gold mining group, 17 have SMR ratings of 67 or higher—meaning below average in this category. There was one stock that had a neutral reading and one that had an above average reading (Kirkland Lake Gold).
Between the bearish signals from A.I.dvisor, the number of bearish signals from the momentum indicators on the 19 individual stocks, and the poor fundamental indicators—I expect the gold mining group to underperform over the next month.
Gold itself shot up quite a bit and the mining stocks nearly doubled from mid-March through mid-May as the world grappled with the COVID-19 crisis and its impact on the global economy. Now that the global economy is beginning to restart and the domestic economy is starting to show signs of recovery, investors might not find the safety of gold as appealing.
Most of the stocks are showing similar patterns where they peaked in mid-May and have been trending lower since. If the fundamentals were stronger there might be a floor under the stocks to help prop them up, but that doesn't seem to be the case for gold miners in general.