Why Penny Stock Investors Should be Watching for a Breakout in Metals

Serious bullish setups are taking place in scores of precious metals and metal stocks right now. Here’s everything you need to know as a penny stock investor to take advantage of a breakout in metals…

Historically, when stocks fail to produce gains, investors have turned to “safer” alternatives like gold or silver, bonds, and money market funds. But safety is a relative term – while these alternative asset classes do typically outperform bear markets for stocks, it’s a big mistake to think of metals like gold or silver as a safe alternative to the broad market.

That’s because the volatility on metals is often as high (or higher than) volatility in stocks. Silver, as measured by the iShares Silver ETF (NYSE:SLV) has rallied more than 115% in the last year – that’s far from “safe”.

Of course, high volatility in metals isn’t a bad thing. In fact, it’s a good thing for traders looking for tactical buying opportunities.

So, how do you use that volatility to your advantage? One incredibly effective strategy is to look for high-probability technical trading opportunities in metals, then turn to junior mining stocks as a means of magnifying a move in the metal. Because bullish breakout potential is forming in heavily traded metals like gold and silver right now, it makes sense to pay close attention to what’s going on in this market.

Want to see what I mean? Take a look at the charts of gold and silver futures below:

These charts show both metals nearing strong resistance levels (the horizontal grey lines). A breakout above those levels suggests that precious metal bulls have absorbed excess supply of futures contracts, and that the spot price of gold and silver are free to move higher.

And because small-cap mining stocks have share prices that are tied very closely to the price of the metals they mine, a breakout in either metal presents an excellent buying opportunity for junior mining stocks…

Here’s a rundown of three of the precious metals stocks that present attractive technicals right now:

• Kimber Resources (AMEX:KBX): This gold stock is seeing a strong resistance level at $1.80. Traders should wait for a break above that level before going long.

• Mag Silver Corp (AMEX:MVG): An ascending triangle setup in Mag Silver presents a potential buy on a move above $13. Until then, this isn’t a high-probability trade.

• International Tower Hill Mines (AMEX:THM): Here’s another gold stock that’s seeing strong resistance right now. In this case, our upside barrier is right around $10.50. If THM can sustain a move above that price, shares should be able to move significantly higher.

Keep in mind that I wouldn’t recommend buying any of these three stocks at this time – instead, they’re stocks that could make good buys if they can manage a move above their respective resistance levels.

Happy Trading,

Jonas Elmerraji
Penny Sleuth

Why Penny Stock Investors Should be Watching for a Breakout in Metals was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

This story was originally featured on Penny Sleuth.

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