Newmont Ready to Run

Newmont Mining (NEM - commentary - Trade Now) is nearing its June top after taking out multi-week highs near $48. NEM is up more than 3.50% today and has easily blown past intermediate-term resistance near its September and October highs.

NEM Daily (NYSE) Newmont Mining Source: TradeStation

The rally today extends a powerful run the stock has had since last month's lows. After topping out four weeks ago just above $48, NEM hit a rough patch with seven straight down days. The selling pressure picked up as the stock lost more ground but failed to take out strong support at its 200-day moving average. This pattern of holding support near its 200-day has been going on for months. The string includes the lows from April, May, July, August, September as well as last month. Following each test of the 200-day, NEM recovered quickly while giving up little of its huge rally off last November's lows.

While remaining in this six-month lateral consolidation pattern, the stock has been setting up for a powerful upside breakout. After steadily declining since late March, volume began to improve dramatically in September, indicating the end of six months of rangebound trade was near. The breakout today is a great start of what could be a big run for Newmont.

NEM Weekly (NYSE) Newmont Mining Source: TradeStation

Since the 2006 spike high, NEM has had quite a few measurable rallies. Once clear of its 200-day, the stock has managed to run $12 to $13 above this moving average before suffering a setback. If this pattern repeats, I expect NEM to test last summer's highs of $54.

Newmont has a solid band of support between $47 and $48. A light-volume pullback to this area, compared to the heavy accumulation that has been driving the current run, would be a low-risk buying opportunity. I believe the stock is in great shape as this week closes out and has a great deal of upside potential going into year-end.

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At the time of publication, Morrow was long NEM in managed accounts.

Gary Morrow is president of Yosemite Asset Management, LLC, a registered investment advisory firm in San Luis Obispo, Calif. He manages individual accounts through Charles Schwab and runs a long/short hedge fund. Prior to forming Yosemite, Morrow spent 12 years on the floor of the Chicago Mercantile Exchange trading foreign currency and interest rate futures. He holds a bachelor's degree in economics from Ripon College.