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Vitalii Liubimov's Avatar
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Jun 17, 2020

Technical Indicators Point to a Downward Move for Gold Mining Stocks

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.

Direxion Daily Gold Miners Bull 2X ETF (NUGT, $63.34) enters Downtrend as Momentum indicator drops below 0 level on Jun 11, 2020

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.

Direxion Daily Gold Miners Bear 2X ETF (DUST, $31.48) enters Uptrend as Momentum indicator ascends above 0 level on Jun 11, 2020

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.

Related Ticker: NUGT

NUGT's RSI Indicator leaves overbought zone

The 10-day RSI Oscillator for NUGT moved out of overbought territory on May 22, 2024. This could be a sign that the stock is shifting from an upward trend to a downward trend. Traders may want to look at selling the stock or buying put options. Tickeron's A.I.dvisor looked at 32 instances where the indicator moved out of the overbought zone. In of the 32 cases the stock moved lower in the days that followed. This puts the odds of a move down at .

Price Prediction Chart

Technical Analysis (Indicators)

Bearish Trend Analysis

The Momentum Indicator moved below the 0 level on June 07, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on NUGT as a result. In of 90 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .

The Moving Average Convergence Divergence Histogram (MACD) for NUGT turned negative on May 23, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 48 similar instances when the indicator turned negative. In of the 48 cases the stock turned lower in the days that followed. This puts the odds of success at .

NUGT moved below its 50-day moving average on June 07, 2024 date and that indicates a change from an upward trend to a downward trend.

The 10-day moving average for NUGT crossed bearishly below the 50-day moving average on June 12, 2024. This indicates that the trend has shifted lower and could be considered a sell signal. In of 15 past instances when the 10-day crossed below the 50-day, the stock continued to move higher over the following month. The odds of a continued downward trend are .

Following a 3-day decline, the stock is projected to fall further. Considering past instances where NUGT declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .

NUGT broke above its upper Bollinger Band on May 17, 2024. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.

The Aroon Indicator for NUGT entered a downward trend on June 21, 2024. This could indicate a strong downward move is ahead for the stock. Traders may want to consider selling the stock or buying put options.

Bullish Trend Analysis

The Stochastic Oscillator suggests the stock price trend may be in a reversal from a downward trend to an upward trend. of 65 cases where NUGT's Stochastic Oscillator exited the oversold zone resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .

Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where NUGT advanced for three days, in of 287 cases, the price rose further within the following month. The odds of a continued upward trend are .

Fundamental Analysis (Ratings)

Fear & Greed

Tickeron has a negative outlook on this ticker and predicts a further decline by more than 1.00% within the next month with a likelihood of 87%.

Industry description

The investment seeks daily investment results, before fees and expenses, of 200% of the daily performance of the NYSE Arca Gold Miners Index. The index is comprised of publicly traded common stocks, ADRs or global depositary receipts of companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver. The fund invests at least 80% of its net assets in financial instruments, that, in combination, provide 2X daily leveraged exposure to the index, consistent with the fund's investment objective. It is non-diversified.
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General Information

Category Trading

Profile
Fundamentals
Details
Category
Trading--Leveraged Equity
Address
Direxion Shares ETF Trust33 Whitehall Street,10th FloorNew York
Phone
866-476-7523
Web
http://www.direxioninvestments.com/
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