-- Posted Sunday, 16 March 2003 | Digg This Article
The indications are that the intermediate reactionary downtrend in gold stocks is over, or very close to being so. While calling a bottom is tricky, a whole raft of indicators point to us being at, or close to, the bottom.
Following weeks of eroding prices, the larger gold stocks went into an almost vertical decline over the past week or so, followed by gold itself, with bullish sentiment declining rapidly. This is indicative of a selling climax or capitulation, especially as it was the bigger, more highly capitalised stocks that took it on the chin during the latter part of the decline.
Numerous indicators are suggesting that the correction is over, or very nearly so, and that we now have a major buying opportunity. Many stocks are at multi-month lows and down around their 200-day moving averages. The MACD’s (moving average convergence-divergence lines) and bollinger bands are indicating a deeply oversold condition on many stocks. Gold itself is dug into major support from which it should, in due course, stage a substantial rally.
Since it was the turn of the larger stocks to take a pummelling over the past couple of weeks, I will concentrate on those in this report. I believe we are seeing intermediate cyclical lows and a buying opportunity in these stocks right now.
Some readers may recall that I came out with a shopping list of junior stocks a couple of weeks ago. These stocks have suffered little in the subsequent general decline. One, CALVF, did trigger a stop-loss, but remains on the recommended list with an adjusted stop because the decline is believed to be due to the general malaise, the others remain recommended with minor adjustments to the positions of stops. I have just reviewed all these stocks, and my opinion of all of them remains the same. BGO dipped into the buy spot I highlighted in the $0.90’s, the stop on CALVF at $0.195 was triggered, it remains a buy, with an adjusted stop at $0.185. All the others remain buys with stops in the same positions as given in that article. I have also seen that there was a wild day on Friday in TVI Pacific, one of the stocks on my list, with the price fluctuating between $0.07 and $0.10 on huge volume of over 17 million shares. I had advised placing stop-loss orders at $0.07 and so I suspect that this may have been an organised raid on my readers’ positions. I therefore advise readers to place their stops AROUND my suggested stop-loss levels, if anything under, in future, in order to make them a less obvious target for raiders. I will re-emphasize this point in future articles.
Before finishing with the charts for a range of larger stocks, I want to end with two thoughts. The first is that we know that in this game that we are, at best, still only dealing with probabilities. This being so it should be obvious that the odds are stacked in our favour far more when we buy something that is oversold, than something that is overbought. Yet, human nature being what it is, it is nevertheless psychologically harder to buy something that has been going down for weeks, than something that has been going up for weeks. This is precisely why, at this juncture, I have sought to highlight the oversold status of gold stocks. This does not mean that the declining phase is necessarily over, but my assessment of the technical indicators is that the probability that it is over, or close to being so, is high. This brings me to my second point. When you see a gargantuan deficit, an out of control money supply, failing investment etc, you can be pretty sure in predicting a recession/depression. When you start a war, in a situation where a lot of variables come into play, the eventual consequences are incalculable. We can be quite sure that the US military will pulverize Iraq, but the ultimate consequences of this, and the likely subsequent attacks on Iran and North Korea, could be horrendous in terms of galvanizing opposition to the US in other countries, both economic and military, blowback and increased terrorism. The effect of these adverse reactions is likely to be exacerbated by a failing economy. These are all variables whose outcome cannot be predicted, and whose effect therefore on capital markets and the price of gold in particular, cannot be predicted. This further emphasizes my point that we are dealing in probabilities in these markets more than ever, as we go forward. While I maintain my long-held view that gold is in the early stages of a bull market of historic proportions, clearly with the uncertain world we are about to enter into, there are likely to be wild swings in prices. Our best strategy to deal with this, in my opinion, is to buy stocks when they are oversold, trade out when they are overbought and protect positions with fairly tight stops.
Gold Bullion Spot
The gold charts now looks great. Looking first at the 3-year chart above, selected because it shows the bull market from its inception, we see that gold remains in a fine accelerating uptrend. The vigorous advance in the winter resulted in an extremely overbought condition, which has now not only unwound, but gone to the opposite extreme – we now have an extremely oversold condition. Note that, this being a bull market, we would not expect to see negative readings on the MACD reach the same extremes as the positive readings. Gold is now clearly in a zone of massive support from the lower boundaries of its trend channels and from its proximity to the large trading, which developed during last year.
The one-year chart below zooms in more closely on the recent action. Here we see the three-wave correction from the high around $390 bringing the price down to what I regard as a “textbook” buy spot, afforded by contact with the lower boundaries of the trend channel and the bollinger band (the wavy three-line corridor), the proximity of the rising 200-day moving average and the massive support of last year’s ascending triangle trading range and, for good measure, we have a deeply oversold condition indicated by the MACD and the RSI.
Big Stocks Chart Overview
Durban Roodepoort Deep (DROOY on NNM, closed at $2.84 on 14 Mar 03)
Gold Fields Ltd (GFI on NYSE closed at $10.80 on 14 Mar 03)
Goldcorp. (GG on NYSE, closed at $10.36 on 14 Mar 03)
Glamis Gold Ltd (GLG on NYSE, closed at $9.85 on 14 Mar 03)
Harmony Gold Mining Co Ltd (HMY on NYSE, closed at $12.55 on 14 Mar 03)
Newmont Mining Corp (NEM on NYSE, closed at $25.09 on 14 Mar 03)
Randgold & Exploration. (RANGY on NNM, closed at $9.16 on 14 Mar 03)
Junior Addition
Cusac Gold Mines (CUSIF on OTC BB, closed at $0.22 on 14 Mar 03)
I end this article with a junior stock that was not on my shopping list a couple of weeks ago because I reckoned it would go lower, which it did, but which I now believe is a good buy at half the price it was ten weeks ago.
Clive Maund
email: goldstocks@cox.net
Kaufbeuren, Germany, 16 March 2003
Clive Maund is an English technical analyst living in southern Bavaria, Germany where he trades US markets. No payment was received by any companies for writing this report.
No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
-- Posted Sunday, 16 March 2003 | Digg This Article
