All that Glitters is not Gold: Miners Pairs Trade, Barrick vs Goldcorp

• Posted by Greg Harmon
• on January 19th, 2011

On the back of last night’s article the Miners Caught A Bid here is a pairs trade in the sector to take advantage of the relative speed of their price movements.

Long Barrick Gold (ticker: ABX) and Short Goldcorp (ticker: GG)

If you are still uncertain about the direction of Gold or the miners in general you can still make money by playing the pair above. Let’s look at the pieces.

ABX had a solid bounce off of the long one year uptrend recently. At the same time the Relative Strength Index (RSI) bounced off of the the oversold level of 30. The support was also very near the 38.2% retracement of the up move from February to December. It is early too tell but the Moving Average Convergence Divergence (MACD) indicator also appears to be flattening. The bias is to the upside. Now look at GG.

GG bounced off of a lower Fibonacci level, a 50% retracement. It also is far below its trend line over the past year. The RSI is at the technically oversold level, but did not get the same bounce that ABX did and the MACD is still growing more negative. now let’s put the pair together.

The ratio chart shows some resistance recently at 1.20. The ratio is currently below this level with about 2% upside just to touch it. Additionally MACD of the ratio is crossing higher and the RSI is rising. Also note that the ratio has traded in three channels moving from the red to the purple to the blue channel. Each one has been about 8 points wide. If the ratio can get through 1.20 then expect a move to 1.28. But don’t give it too much time to happen, the last two channels have had a duration of about 5 months, suggesting the current channel might have another 3 months to go. Be prepared to exit or reverse the trade at 1.20 if it does not break and move higher steadily, riding it to the bottom of the channel at 1.13.

Trade’m well.

(As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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