Strike Gold With Newmont Mining

In this environment, I don't want to be short.
Author:
Publish date:

I usually pen one short idea each week.

But this is one dicey market, and I'm just not a believer in shorting in a market in which:

    short interest is high;

    volume is low due to the Jewish holiday season;

    a widely anticipated catalyst is just a few trading days away; and

    the market has been working off a deeply oversold condition for the past month.

    Simply put, I just don't think this is the best environment in which to be short. There are too many unknowns.

    So let's look at an idea that seems to be working now and at one that is likely to continue for a while.

    With the market largely anticipating a

    Fed

    that is focused on propping up the economy rather than fighting inflation, it's no wonder that gold is moving higher.

    The yellow metal cannot be destroyed, and it's the usual destination for those who are looking to hedge against an inflationary environment.

    One stock that has been perking up after an 18-month decline is

    Newmont Mining

    (NEM) - Get Report

    .

    The weekly chart below shows that NEM has lost a third of its market cap since the early 2006 high.

    And since late last year, each time the bulls have tested the 30-week (150-day) moving average, the bears have sold into the rally.

    But that really changed a couple of weeks ago when NEM blew through this key moving average.

    Volume was just a bit suspect, though, and that's why I'd be inclined to wait for a pullback rather than chase the stock.

    Our long entry will be at $43.05 -- just above the even number where a lot of limit buy orders are likely to be lurking.

    And once we've bought the stock at that level, then we'll put a fairly tight stop just below that level -- around $40.90.

    Assuming the Fed cuts rates, it's likely that the dollar will continue to decline, which is another positive catalyst for gold.

    I'd set a long-term price target for NEM up at $55. It will take the stock a while to get there

    -- but it's been there before.

    Update on Other Picks

    I featured

    First Marblehead

    (FMD)

    as a potential short a while ago, but instead of falling through support, the stock rallied. In fact, I featured it in yesterday's piece as a potential long. As such, we're taking it off the watch list.

    We hit our entry of $49.95 for

    Tiffany

    (TIF) - Get Report

    on Friday. The stock is starting to look strong, though. The idea is that the stock will print a lower high as traders give up on the high-end jewelry stores. However, that may not be the case as the stock fell just another $1.50 before moving higher. Our buy-stop is at $52.60 and will remain there.

    At the time of publication, Fitzpatrick had no positions in stocks mentioned, though holdings may change at any time.

    Dan Fitzpatrick is the publisher of

    StockMarketMentor.com

    , an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback;

    click here

    to send him an email.