Newmont vs. the Ratio Spread (NEM)

Newmont vs. the Ratio Spread (NEM)

One guy’s a weird-looking, shameless commie, the other is cheating on his wife, another’s husband is constantly cheating on her, and the last one’s a big-mouthed billionaire who hasn’t thought it all through.


And they all want to be leader of the biggest bureaucratic police state on the planet!


At a time when the whole global order is falling apart!


What the hell!


Why not just duck outa sight, buy a few goats, plant some vegetables and stay under the radar?


Trade with your neighbors, raise your kids right, teach them the basics…


Doesn’t that make a lot more sense?




What’s with all the attention seeking? Why does everyone want to be famous? Because that’s what it really all boils down to, after all.


Forget about any notion of public service or leadership or ideals or guardianship – it’s all crap. Folks just want to be a ‘somebody’. They want to be known – however that might be.


Whatever happened to the virtues of anonymity?


Why not strive to be the small guy?


Where the hell have we gotten to?


A New Market Rising


The rant is officially ended.


What’s clear is that as the stock market gains traction – and there’s no gainsaying that it’s doing just that – the precious metals will be buried beneath the rubble.


Let’s look at the major indexes.




  1. As you can see, we have a clean breakout as of yesterday on the NASDAQ 100 (top chart, NDX), a move that brings the tech index above all its moving averages, beyond the heaviest resistance, and sets a clear path toward testing the last retracement highs in the 4700 to 4750 range.


We note, too, that all NDX moving averages are trending higher and could be fully unfurled within a couple of weeks if the current strength endures.


  1. The middle chart of the S&P 500 shows another clean break above resistance at the long term moving averages, with an added ‘plus’: SPX has broken above resistance, done a retest of the same line (now support) and, as of yesterday, has bounced into blue sky territory.


We look for an immediate 50 point bounce for the broad index toward the November/December highs – sometime in the next fortnight.


  1. Finally, the Dow Industrials (bottom chart) has been the most impressive of the bunch, technically speaking, with all her moving averages bested two weeks ago and no looking back since.


We especially like the Dow’s prospects going forward, as that index has the most household names and provides a home to some of the market’s sexiest stock pickings, those stocks with the greatest likelihood of outperforming as we move into the senseless buying phase of this last and greatest of all bull market blow-offs.


Wailing Away on the PMs


That said, it’s no longer a question of whether the precious metals will take a kit-shicking in the coming months, it’s rather how much so? Will they be maced, flogged and sent to the butcher direct? Or will it be a slow turning of the screws that gently bleeds the goldphiles for, say, a year, before they finally succumb to the bony whip of exhaustion?


Time will tell, Tiffany…


All of which leads us to our trade for the day, a precious metals hate-fest, some might call it, though we prefer to remain clinical. We, for instance, don’t see gold’s blood splattered on the streets. We see only evidence.




We’ll start with a chart of silver, as represented by the iShares Silver Trust (NYSE:SLV), and we’d like you to pay keen attention to the price action itself, which over the last two weeks has been decidedly weak.


Here it is –




We’ve blown up the last five trading sessions (in the red box above) to highlight not only the steep gap down that occurred on the 23rd of March, but also the fold-over of two moving averages that occurred at the same time.


SLV is now struggling like Robert Shaw in JAWS to escape the clenched mandibles of the shark, and as time ticks away, it becomes less likely that she’ll succeed.


A look at the RSI indicator (in green) shows a dive beneath the midway waterline, bearish enough in itself. But should MACD follow suit and begin taking on water – as she appears poised to do any day now – we’ll see a full-fledged technical sell signal that will bring all the momentum and bandwagon traders along with it.


At that stage, silver will be headed toward a retest of her bear market lows in the $13 vicinity.


Adding Insult to Death


Gold, too, as represented by the SPDR Gold Trust (NYSE:GLD), has run into trouble of late.




As the chart above makes clear, GLD has been struggling since posting an extreme overbought read in mid-February (red circle). RSI has been falling ever since and in the last week has struggled to stay above its mid-way waterline (red square). Within a few days, MACD, too, will splash about in an effort to stay afloat, but as soon as she succumbs we’ll have a sell signal in gold, too.


And that appears inevitable.


Volumes have been drying up (in green), and the short term moving average is now placing a ‘cap’ over price (in black).


We fully expect a breakdown to the long term moving average at 113 within a month (blue square).


So how do we trade it?


We’re going to use one of the miners to play the upcoming weakness in gold, a stock that got far too extended and appears ready now for a sizeable pullback.


It’s gold giant Newmont Mining (NYSE:NEM), and this is its chart –




RSI posted an overbought indication in early February (green circle), and the momentum has been slowing ever since.


More significantly, however, the gap down that opened two weeks ago (red box) has been closed as of today. And that means the way lower has been cleared for sellers.


We’re expecting a fall to the long term moving averages in the $21/22 range (in blue), and we’re going to play it with a bear ratio spread.


It goes like this –


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Options Trader Elite recommends you consider purchasing one at-the-money NEM June 26 PUT for $1.87 and selling four (4) NEM June 21 PUTs for $0.41 each, for a total debit of $0.23.



Many happy returns,


Matt McAbby

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