The last few weeks have been terrifying and stimulating at the same time. As someone that has always looked for opportunities on both sides of the market, periods of increased volatility are exhilarating to me.
However, combing through chart after chart over the weekend and on Monday, it was tough for me to find stocks or ETFs that were worth looking at or talking about in this increasingly bearish market. The huge selling two weeks ago put many stocks in oversold territory, but then the huge rallies on Wednesday and Thursday of last week sent many up close to overbought territory on the daily charts.
Even the nightly scans I run weren’t producing ideas. There was only one bullish stock on the scans last night and not a single bearish stock.
Eventually I did find one chart that I liked the looks of: Barrick Gold (NYSE: ABX). The thing that caught my attention on the chart for Barrick was the potential double bottom at the $6.50 level. The stock hit that level twice in the last month and then bounced.
Another factor that I like about Barrick is that if the chaos in the global stock markets continues, investors will likely start seeking shelter in gold and treasuries. The price of gold has been trending down for four years now and it has taken mining stocks like Barrick down with it. Now that gold is primed to move higher in the coming months, I look for mining stocks to rise with the metal.
From a sentiment perspective, the short interest ratio is only 1.0, but that is partly due to the price being so low already. Analysts are doubtful about the stock’s chances for a rally, as 16 have it rated as a “hold,” one has it rated as a “sell” and only eight have it rated as a “buy.”
Another angle to view the sentiment for gold itself is through the Commitments of Traders reports released each Friday by the Commodity and Futures Trading Commission. The reports are broken down into three categories: large speculators, small speculators and commercial hedgers. Looking at the reports over the past month, large speculators – which are mostly hedge funds and other institutional traders – have become less bearish.
I say “less bearish” rather than more bullish for a reason. What we see is that on July 28, the group was long 182,977 contracts and short 158,512 contracts, giving us a net total of long 24,465. As of August 25, the group was long 189,893 and short 119,160 contracts, for a net long position of 70,773. While the contracts held long only increased by 6,916, the contracts sold short dropped by 39,352 contracts.
Perhaps with fewer large speculators betting against gold prices – and with the turmoil in the overall stock market – gold will start to rise again and will attract concerned investors.
As for Barrick, I would look to buy it at its present price with a stop-loss at $6.35. That gives you a little room below the support in case it makes a false move down. As for the target on the upside, I think it can move back up to $8.50 with relative ease and the longer-term target of $10 looks good.
Wars will be fought over this
Over the last 15 years, one resource has caused more than 500 conflict-related events…11 of which have turned violent. What’s more, the British non-profit International Alert estimates that there could be 46 conflicts within the next 10 years…all related to this scarce resource. And some of the wealthiest insiders—Warren Buffett, Goldman Sachs and JP Morgan—are moving to profit from it right now. Go here to get the full story.