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My plan for trading gold stocks

9/3/2012 1:40:56 AM | Jeff Clark, Growth Stock Wire

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Traders should use any weakness in the gold sector over the next week or so as a buying opportunity

There's still plenty of money to be made in gold stocks.

They've had a great run. The Market Vectors Gold Miners Fund (NYSE: GDX) is up 16% in just the past month. After such a huge move, it's normal to expect a brief pullback or at least a pause in the rally. And we'll probably get that.

But traders should use any weakness in the gold sector over the next week or so as a buying opportunity... because there's more upside ahead...

Take a look...

The blue lines on the chart above show the trading range for gold stocks since April. GDX is now bumping into the upper end of the trading range. So it's reasonable to expect some sort of a pullback here.

But if this month-long rally is really the start of a longer-term move higher for the gold sector, GDX shouldn't give back more than 50% of its recent gains.

Traders should view any drop toward support (the red line) just below $45 as a gift from the market gods. It's a low-risk entry spot to jump into the sector.

Of course, we may not get that pullback. The market doesn't always give traders a low-risk chance to hop onboard a major uptrend.

It's possible GDX could just power higher from here. A decisive move above $48 per share will push GDX out of its five-month-long trading range. If that happens, forget about waiting for a pullback. Just hop on board. GDX will be heading higher toward its next resistance level at about $57.50.

That's how I plan to trade the next move in gold stocks. I'm buying any pullback toward support near $45... or on any breakout above $48.

ABOUT THE AUTHOR

Jeff Clark, Growth Stock Wire

Growth Stock Wire is free daily investment newsletter written by veteran market traders. Every morning, GSW readers receive a pre-market briefing on the day's most profitable investment opportunities.

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