The Dow Jones Industrial Average hit all-time highs last week, spawning a wave of euphoric headlines across the financial media. What’s truly impressive is that buyers continue to step in at virtually every pullback, which is quite the risky maneuver when you consider the stellar run-up seen on Wall Street since the November 16 lows last year [for more market news and analysis subscribe to our free newsletter].
Not every sector is surging, however; in fact, gold miners in particular have been sinking since the start of winter in 2012. While this is surely frustrating for some buy-and-hold investors, the correction in the gold miners sector is a blessing in disguise for others who are looking to get a piece of the bull market action but are wary of jumping into a security that is trading near record highs.
As such, industry behemoth Goldcorp Inc. (GG) warrants a closer look for any eager buyers as this stock boasts a technical setup that is sure to tantalize risk-tolerant investors in search of lucrative upside potential.
Chart Analysis
Consider Goldcorp’s five-year weekly chart below. Notice how GG has sunk to a level (blue line) that it previously rebounded off in early 2010 and later again in mid-2012. While Goldcorp’s decline over the last year is surely concerning, the fact that selling pressures have cooled off in recent weeks perhaps suggests that bargain buyers are once again stepping in at levels not seen since 2010. It’s important to note, however, that a break below this historic support level would likely welcome accelerating profit-taking pressures that could sink this stock well below $30 a share.
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Now consider GG’s one-year daily chart below. Zooming in, it becomes quite clear that GG is in the process of bottoming out, given the fact that it’s holding above the $32 level (blue line), similar to its behavior in mid-May and mid-July of 2012.
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Investors can get in long at current levels and favorably position themselves in anticipation of a rebound while at the same time closely managing downside risk; we advise setting a stop-loss at or below the recent lows in case selling pressures unexpectedly sink this stock below its current support level [see 5 Commodity Trading Mistakes You Could Be Making].
Outlook
Establishing a long position in shares of GG at current levels is quite speculative given the downtrend at hand. Nonetheless, the stock is showing signs of bottoming out, which could lead to a trend reversal in the coming weeks or maybe months. From a technical perspective, this stock has immediate support at $32 a share along with resistance around the $38 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
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Disclosure: No positions at time of writing.
