Pair: Buy: NEM, Sell: GDX
Target +25% Stop -5.5%
TPA sees an opportunity to be long NEM versus the Gold Miners ETF GDX. NEM is the largest weighting in ETF at 12.77% (table below), but it has severely underperformed GDX as GLD (Gold ETF) has rallied 32% since 3/19/20.
Chart 1 shows the ratio of NEM/GDX. The ratio broke out of a 9-month downtrend at the start of the year and rocketed 40% in 2 ½ months.
NEM/GDX has now declined 25% since its apex in March and is back to long term uptrend support
Chart 3 shows how the ratio of NEM/GDX has declined (NEM underperformed GDX) as GLD has rallied higher.
Another way to see the recent pattern is to look at a relative performance chart of NEM/GDX and GLD. Since 3/19/20, GLD is up 32%, while NEM/GDX is down almost 20%.
Chart 5 shows that, since 3/19/20, GLD is up 32%, GDX is up 106%, but NEM is only up 32%.
This pattern of NEM underperforming on GOLD (GLD) spikes is common over the past 10 years. Chart 6 shows that the ratio NEM/GDX usually declines when there are quick, steep rallies in GLD. The pattern probably occurs as the smaller and more volatile Gold stocks in GDX move faster than the larger NEM.
Chart 7 reveals that, after the quick period of underperformance, NEM/GDX normally enjoys a large rally. Since 2010 the rally after decline has been between 22% and 60%.