Dollar fall should lift some gold stocks

FRIDAY last week our market looked as though it was ready to reverse to the upside, but Monday and Tuesday this week put paid to that, at least in the short term.

Wednesday, however, traded in a relatively low range just above and below Tuesday’s closing price and finished the day just three points below Tuesday’s close, indicating some indecision on the part of traders.

The market is at a strong support/resistance level and if it is going to reverse it should be from around this point.

Although the market was neutral on Wednesday, when this is written, the banks – which have been in steep decline for the past month – all traded down early in the day but managed to close well above Tuesday’s close.

The one doubt I have is they also closed well off their highs for the day.

By the time you read this we should know if they have in fact reversed their respective downtrends, or the whole market is in for a further move down.

While the overall market has been in steep decline for the past month there have been some stocks, many in the second tier or mid-cap level, that have moved up or at least held their own.

Two of the three stocks discussed last week – Monadelphous Group (MND), Cimic Group (CIM) and Aristocrat Leisure (ALL) – managed to hold on to recent gains, but did pull back during Tuesday’s market fall and were then strong movers on Wednesday. CIM was the odd man out as it finished down on Wednesday’s close after trading 30c above and below its opening price, so I will wait and see how it performs for the week as it has to fall and close the week below $39.32 to form a weekly pivot point to the downside.

As I have mentioned over the past year or so, I expect the health and tech sectors to be among the leaders in any market rally we may see. It is interesting to note that some of the gold stocks are performing well and this may indicate the market is looking at further falls in the Australian dollar.

If gold only holds its own, then some gold stocks will certainly move up if the dollar falls. Four of these stocks are Gold Road Resources (GOR), Northern Star Resources (NST), Evolution Mining (EVN) and St. Barbara (SBM).

GOR has formed a classic cup and handle pattern, which I described last week. All that is needed is for a close above 75c as the buy signal.

NST has almost formed the cup section of the pattern. The pattern will be complete if a handle forms at $5.50.

EVN has formed the cup section of its pattern over the same time as NST and I am looking for the handle to form just under $2.60.

SBM has also formed the same pattern since mid-2016 and I will be looking for the handle to form just under $3.20.

These gold stocks may be where I get my next trade.