Gold Fields Limited (NYSE: GFI)

Gold Fields Limited engages in the acquisition, exploration, development, and production of gold properties. It holds interests in eight operating mines in South Africa, Peru, Ghana, and Australia. As of February 27, 2012, the company had total attributable precious metal and gold equivalent mineral resources of 217.0 million ounces and mineral reserves of 80.6 million ounces. Gold Fields Limited was founded in 1968 and is based in Sandton, South Africa.

To review Gold Fields’ stock, please take a look at the 1-year chart of GFI (Gold Fields Limited) below with my added notations:

1-year chart of GFI (Gold Fields Limited)

GFI has been trading within a large, sideways Rectangle for the last (5) months. Rectangle patterns form when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. What’s great about a Rectangle pattern is that it not only provides you with trading points of support & resistance, but it also gives clearly defined breakout & breakdown points. For GFI, the Rectangle pattern formed a $14 resistance (red) and a $12 support (blue).

Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown point to get the minimum price objective. For example, since the Rectangle pattern for GFI is $2 high ($14 – $12), GFI should climb to a minimum of $16 ($14 + $2) if it breaks above $14 or fall to $10 ($12 – $2) if the stock breaks below the $12 level. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.

The Tale of the Tape: GFI has formed a very common chart pattern know as a Rectangle. The possible long positions on GFI would be either on a pullback to $12, or on a breakout above $14. The short opportunities would be at either $14 or on a breakdown below $12.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!

Christian Tharp, CMT