2 Gold Stocks Offering an Opportunity For Call Buyers

Gold stocks Newmont Mining Corp (NEM) and Goldcorp Inc. (USA) (GG) have fallen below their lower Bollinger Bands

by Alex Eppstein

Published on Mar 8, 2017 at 11:31 AM

Gold stocks have lost some momentum due to the rising prospects of a March interest rate hike at the Fed. Nevertheless, there could be some winners in the sector, based on the technical landscape. For example, Newmont Mining Corp (NYSE:NEM) and Goldcorp Inc. (USA) (NYSE:GG) shares are approaching key levels, several of which have historically translated into gains.

First off, NEM has been testing its lower Bollinger Band for more than a week, suggesting it's oversold and may be due for a bounce. Historically, this has been the best "buy" signal for stocks over the past year. Moreover, the shares are approaching their 320-day moving average, which hasn't been breached on a daily closing basis since February 2016, and could now act as a layer of support. On top of that, NEM just filled a bullish gap from late December in the $32.50 area, which could bolster the foothold.

newmont mining stock chart bollinger bands

If that's not enough, heavy put open interest of 15,669 contracts resides at the at-the-money March 33 put. As these positions begin to unwind ahead of next Friday's expiration, it could trigger tailwinds for NEM shares. Speaking more broadly, open interest in the front three-months' series is extremely put-skewed, per the gold stock's Schaeffer's put/call open interest ratio (SOIR) of 1.35 -- just 4 percentage points from a 52-week high. At last check, Newmont Mining Corp was up 0.1% at $33.

Meanwhile, GG has been breaching its lower Bollinger Band in recent sessions. Moreover, the stock is testing its 80-day moving average. This has happened four times in the past three years, and in 75% of those instances, the shares have gone on to post positive 21-day returns.

If that happens again -- or if the Fed shocks the world by not hiking interest rates next week -- Goldcorp Inc. could get a boost. In fact, from a contrarian perspective, the stock is primed to benefit from upgrades, as almost half of analysts maintain "hold" or "strong sell" recommendations. Not to mention, 25 million GG shares are sold short, hinting at short-squeeze potential.

Making Newmont Mining Corp (NYSE:NEM) and Goldcorp Inc. (USA) (NYSE:GG) all the more attractive is the fact that their options are modestly priced, from a volatility standpoint. Specifically, NEM's Schaeffer's Volatility Index (SVI) of 35% is in the low 19th annual percentile, while GG's SVI of 37% is in the 14th percentile of its 12-month range.

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