For the Spock Gold and Silver Mining Matrix , you will see each stock rated according to this model, marked in the Traffic Light column. Most of the holdings are Weinstein Stage 1 or 2, but some are also still in Stage 4, which I am avoiding right now, but at some stage they will transition to Stage 1 then to Stage 2. In addition to the Weinstein overlay I am using a proprietary extra-day algorithm to generate the trade bias (buy and sell signals). Hope this explains what is going on in the background. This is not a not a hit and miss affair folks. What you are getting is an edge in the market in a beaten down sector where the value is astonishing in many cases.
Weinstein’s strategy revolves around two themes: identifying which stage the stock is in and using a 30-week moving average to help with timing and identification.
Stage 1 is the horizontal trading range that begins the method. After declining out of stage 4, price moves sideways, sometimes rising above the 30-week moving average and sometimes not. The moving average flattens out, following price horizontally. Price is choppy but usually forming a rectangle or sideways price movement. Volume may rise as people cash out of the stock after waiting for it to move up.
Stage 2 is the uphill run. Price breaks out of the trading range of stage 1 on impressive volume, which helps power the stock upward, leaving the moving average trailing behind. In the early portion of stage 2, price may throwback at least once to the top of the trading range marked during stage 1. The moving average turns up. Price makes higher highs and higher lows (think of an ugly double bottom here). If you don’t see higher lows, then it’s not stage 2. Price will remain above the moving average
Stage 3 is the top. Price levels out and begins to move horizontally again. The moving average is climbing but flattens out, eventually catching price, slicing through it. Volume may increase as price churns sideways, forming sharp peaks and troughs while trying to pick a new trend direction. Weinstein says traders should take profits in this stage, but investors can hold on by selling half their position. If price moves up, forming another stage 2 advance, then continue to hold. A downward breakout from the trading range should cause a sale.
Stage 4 is the downhill run. Volume is not the key to this stage because it can be heavy or light as price drops. Price breaks out downward from the stage 3 top and may pullback into the trading range. After that, though, price continues down. The moving average usually remains above the stock as price drops.
<strong>Most of the small and mid tier gold miners in the Matrix are Stage 1 and 2. So that is where the focus is. Many large cap miners are not in the matrix, for a reason, including balance sheet issues, like debt. So they are generally excluded from coverage. Examples of those excluded are Kinross, Goldfields, DRD, Anglogold, Newcrest Mining etc where the debt is a significant part of their enterprise value, and will weigh them down in the future as cash-flows get consumed servicing the debt. </strong>
The other point worth noting is that GDX includes a lot of these highly indebted large cap miners. For that reason, as an investment, GDX will generally underform over the longer term, compared to the stocks in the Spock Matrix.
Trade Well and Prosper. Spock.