One of the problems with this market is the dearth of swing trading setups. Even worse, of the few setups, even fewer work and fewer last very long. That's why we've been locking in profits early like with GDX stock.
Gold Sets Up On Multiple Time Frames
As inflation ramped up over the last couple of years, gold stocks seemed like the easy trade. But it didn't work as quickly as many thought. The VanEck Gold Miners ETF lets you get the exposure to gold with some larger moves leveraged by the individual miners.
GDX stock bottomed out and started moving higher as the banking crisis began making headlines. It quickly got above its 50-day line (1) and went on a quick and steady move over the next month (2). At the same time, the SPDR Gold Shares ETF that tracks the price of gold bullion neared an area of resistance stretching back as far as 2011.
The relative strength line also soared as gold-related merchandise benefited from a flight to safety.
Strong moves deserve patience as they often give you another chance. That's exactly what GDX stock did.
GDX Stock Sets Up
GDX stock pulled back over the next two weeks but held right around its 21-day moving average line (3). It was really a one-week pullback followed by a refusal to go down any more.
With this kind of tightening action, you expect the stock to break one way or the other. Wait just a bit of time and the stock will reveal its direction so it isn't necessary to buy early in anticipation.
Check out IBD's new OptionsTrader app for options education, trade ideas and more! Download from the Apple App Store today.
When GDX stock did start moving higher from its 21-day line, it also had volume to accompany the move (4). That earned it a spot on SwingTrader.
Within a couple days, GDX stock was at a more traditional breakout point and the volume spiked above average again (5). But breakouts have been problematic with many stocks, quickly failing or at least lacking follow-through.
So what did we do? We followed our normal rules and took our first third of profit since we had nearly a 3.5% gain.
That ended up being a near-term peak.
Locking In Profits Before They Disappear
The next few days saw GDX stock fall, but not in a big way. Even when it initially broke below its 5-day moving average line, it wasn't a very decisive break (6).
But when it fell further the next day (7), we locked in the profits on the position before it could fall further. It initially seemed premature since GDX stock recovered a lot of lost ground by the end of the day. But when it plunged through both the 10-day and the 21-day line the following session (8) the wisdom of taking the profits was clearer.
More details on past trades are accessible to subscribers and trialists to SwingTrader. Free trials are available. Follow Nielsen on Twitter at @IBD_JNielsen.
