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As you are aware, gold and mining stocks are in a huge secular bull market that began in 2001 and will continue for many years into the future. Thanks to the bull, gold and miners generally trade in one direction. Up.
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The Bollinger Bands are an indicator that puts a line above and below price as a measurement of the security's standard deviation of price range. ie, 95% of the time price will be somewhere between the two lines.
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In bull markets, however, price - because it is relentlessly exploding higher - will reach and pierce the upper Bollinger Band relatively often. Not surprisingly, price rarely pierces the lower band. When it does pierce the lower band, the astute technician sits up and takes notice.
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This first chart is daily GLD. I counted only 3 instances of GLD reaching the lower Bollinger Band in the past 2 years (counting yesterday).
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This is a daily chart of Allied Nevada Gold Corp (ANV). I updated the Kitco miners page this morning. If you take the link over there you will observe that ANV has had earnings upgrades in the past 6 weeks yet, as you can see from the chart, price has been severely corrected.
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The stock market always swings from one extreme to another. We KNOW which extreme ANV has swung to and this is a great buy, IMO.
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This is a daily chart of Jaguar Mining Inc (JAG). You may recall I posted about this one a while back when I suggested it was ripe for being severely short sold. Anyway, JAG is today 30% cheaper than it was 3 weeks ago. Its explosive projected earnings have remained neutral over the past 6 weeks. This, too, is a great buy, IMO.
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CLICK on the chart to ENLARGE
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This last daily chart is of Silver Standard Resource (SSRI). Earnings projection for 2010 has been raised in the past 2 weeks yet we see SSRI has taken a 25% haircut since mid-June.
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For the traders in my readership, you know that these Bollinger Band crash trades usually provide a decent bounce in the short term. And for the value investors, these opportunities do not come along very often. Please, if you should become interested in one of these stocks, check out a long term daily chart and see for yourself what usually happens when the lower Bollinger Band is pierced. I think you will be pleasantly surprised.
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CLICK on the chart to ENLARGE
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2 days ago
Thank you for an interesting article. There is a really good free tutorial on Bollinger Bands at BollingerBands.com, including some rules that will keep you on the right side of a trade.
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