As the market crashed earlier this year and the bond market got "yippy," gold stocks were the clear beneficiaries. But once we had our follow-through day on April 22, who needed the security blanket that the sector brings?
The answer is simple. Given how gold firms are acting around support levels, there's a reason why we don't want to lose sight of this area.
Did Gold Stocks Do A Little Too Well?
With all the excitement of productivity gains possible with artificial intelligence, it's hard to get too excited about a shiny metal. But this hasn't been the year to ignore it. The SPDR Gold Shares exchange traded fund is up more than 28% for the year in a continuation of a move that started in 2024.
We've gravitated toward the gold miners, using either the VanEck Gold Miners ETF or its leveraged counterpart Direxion Gold Miners 2X Bull ETF. The gold players offer a little more movement for swing trading as miners leverage movement in the underlying commodity.
But euphoria can strike even in commodities. As the angle of ascent for gold stocks shifted into a more vertical direction, there was a concern that they started to look climactic. Especially with the downside reversals near the top (1).
But when gold stocks bounced back (2), we looked for a fresh entry on SwingTrader. We found it in the VanEck fund after one more pullback saw a bounce at the 10-day moving average (3). Then, when it was announced over that weekend that there would be a de-escalation in tariffs between the U.S. and China, gold lost its luster again (4) — at least temporarily.
Hitting A Level Of Support
After a 15% correction, gold stocks seemed to hit a level of support just under the 50-day moving average line with two upside reversals (5). As the VanEck fund crossed back above the 50-day line (6), the market itself was showing impressive resilience. But as the market looked ripe for a digestion of gains, we decided to go with a leveraged position in the Direxion fund to hedge against possible market weakness (7).
O'Neil Portfolio Manager Shares How He's Using Precedent To Inform His Investments
We've been quick to take profits when we have them in this market and that was the case here as we trimmed the position by half the next day (8) and exited completely on Thursday (9). Not that the position was doing anything wrong. But with the market showing resilience we were moving money toward growth and away from defense.
Weekend Worries
As we recognize the Memorial Day holiday, it should be noted that the market closure only affects U.S. exchanges. A lot can happen on the news front before the next trading session on Tuesday.
That led us to put another position with the unleveraged VanEck fund heading into the weekend (10). Since the market has handled bad news well, we are leaning bullish.
But it helps to have some positions available for countertrend moves just in case the long weekend holds surprises. It's not always just about individual positions but how they fit with your overall portfolio.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
