A Critical Support Level for Gold Stocks

Near the top of our watch list right now: GDX and the $52 level.
 
Back in the dark days of December 2008, we tagged gold stocks as one of the market‘s leading “rebound” candidates. The sector was the definition of “beaten up and left for dead.” The “golds” behaved as we expected… and gained 116% over the following 12 months.
 
But as you can see from today’s chart, the gold stock rally stalled in November 2010. The bulk of investors simply don’t believe gold companies will enjoy years of robust gold prices. GDX, the big gold stock fund, has treaded water for the last year.
 

 
We see the makings of a low-risk, potentially high-reward trade in gold stocks and GDX right here. The fund has dipped down to the $52 level several times in the past year… And it’s rallied each time. If gold holds steady here, these cheap stocks will rally again. One can buy with a tight stop loss around $52.