#GoldStocks – talking trees when there’s a forest out there…

To state the obvious, most stocks move with the general market, and more obviously almost all stocks move like all stocks in their sector.

And this may be no more obvious than with the gold stocks.

I’m always surprised at the endless discussions of which gold stock to buy. Gold bugs, particularly, love this stuff — this one, or that one, or maybe that one. One stock picker or another has very good arguments for each of their choices, fundamentals, technicals, some buddy’s opinion, whatever, but they all ignore the obvious — they’re talking about trees when there’s a forest out there.

Take a look at the charts below.

Five of those charts are stocks and three are ETFs, but hide the symbols and company names for each chart and who would be able to tell which NEM and which GOLD, which is AEM and which is NUGT? The patterns essentially all look the same (like fir trees in a fir forest).

But actually they are not the same. I have the same swing-trading system on each of those charts. Now look at the numbers in the white flags on the lower left of each chart. Those are the total returns year-to-date per $100K committed to each swing trade (calculated also to easily show percentage gains for the system).

Obviously, there is a difference between the stocks and the ETFs. The leading stock in the sector, KL, is up 17%, while RGLD, lagging, is up only 1.4%; a prominent name like Newmont Mining (NEM) is up 14%. On the other hand, the leveraged ETFs, NUGT and JNUG, are both up 82% and even GDX, not leveraged, is up 25% – same time frame, same trading system.

The trading system here is not the point. It is just here to illustrate that too often traders and investors can’t, as they say, see the forest for the trees.

(CLICK ON THE CHART PANEL FOR A LARGER VIEW)

UPDATE 8/22 – #GOLD stocks prove there is always a bear market somewhere

This what a bear market and an outright crash looks like.

Gold and its sector stocks, after a long steady decline, went into free fall about four trading days ago and continued down virtually across the board today.

See the chart panel below for a random selection of the stocks.

Like all stocks, when the bear growls, these gold stocks can go down forever, but there were a couple of signs that the fall might be slowing in that two of the biggies – NEM and ABX — at least fell slower today (see the NEM chart below for an example).

A bounce may be due right about now for a quick scalp on the long side before any more decline. After drops like these this week, it will not surprise me if short-sellers want to log some profits for the weekend. Watch the open tomorrow for a trigger and keep a tight stop.

It must be said more downside will come with this much momentum in place. Shorting the bounce, if and whenever it comes, may be the better strategy for swing traders. The sector will be in its own bear market until it isn’t anymore and it’s going to have to base for sometime before it ever sees a bull again.

However, for the longer term, gold has had value for centuries and will again. Those who like to bottom fish and hold forever, or at least until the metals shine bright again, might start to carefully and patiently bait their lines.

UPDATE FRIDAY:

Buy NUGT on the open Friday for a 5.8% gain for the day, 9.6% from the previous close, JNUG for 8.3% on the day. Called this a scalp so took profits on the day trade and will watch the bounce to short. Alternative play would be to take half the profit on the close, let the rest ride with a break-even stop.

UPDATE 8/22:
Taking off alternative play, bear market bounce: NUGT up 9.9%, JNUG 10.7&, four days up into a black candle (see second chart below).

(click on the chart panel for a larger view)

(click on the chart for a larger view)