For the gold bugs out there, owning the physical metal may be the preferred choice in playing rising gold prices. For equity investors, though, there are other options.
While the SPDR Gold ETF (GLD - Get Report) or the VanEck Gold Miners ETF (GDX - Get Report) is one way to play, Kirkland Lake (KL - Get Report) has quickly found itself among the top of many gold traders' watch list.
The stock has become a go-to name in the gold trade and given its price action, it's not hard to see why. Shares of Kirkland Lake fell 3.7% in Wednesday trading, vastly underperforming the GLD, which closed lower by 1.85% on the day.
It's this type of performance that's caught investors' eye. So far this year, Kirkland Lake stock is up 81% compared to GLD's gain of "just" 17%. On the good days, KL stock vastly outperforms the GLD and on bad days, it can lag by a considerable margin too.
The bottom line: Aggressive buyers can take a chance on KL stock at the 50-day. However, a better risk/reward scenario presents itself on a breakout over $50 or on a deeper pullback into the $42 to $44 area.
The question now is, what's next for Kirkland Lake stock?
Save 57% During Our Fall Sale. Join Jim Cramer's Action Alerts PLUS investment club to become a smarter investor. Click here to sign up and save!
Trading Kirkland Lake Stock
This stock is clearly finding $50 to be resistance. Its latest run topped out at $49.65 and while gold's price action is the primary driver of KL stock, it's still worth highlighting.
The 50-day moving average would typically be an area to buy a strong stock on a pullback. However, shares plunged through this mark earlier this month before bottoming at $42.29.
So what should investors do?
Aggressive buyers may consider a long position in KL stock as it's near the 50-day moving average now. However, more conservative investors may consider waiting for a better risk/reward setup. Specifically, investors can either wait for a deeper correction or a possible breakout.
In the case of the latter, if the 50-day moving average holds as support, investors will look to see another test of $50. Over $50 puts KL stock on watch for a breakout, with the recent highs at $51.08 as the first upside target. Over that mark and Kirkland can really gain some momentum.
On a deeper correction, investors may find a better risk/reward setup between $42 and $44. Near $44 is the 78.6% retracement, while short-term range support (black line), uptrend support (blue line) and the 100-day moving average are all down near $42.
Buying into support allows investors to take a "right or right-out" approach. Meaning that if they're right, the stock will bounce and they can stay long. However, they can get "right out," with minimal losses if support fails, as they know shares are now likely heading lower.