-- Posted Sunday, 29 January 2006 | Digg This Article
This was a momentous week on the JSE. It again soared to new all time highs, but that was not the real event. Sure the gold shares took off as the quarterly reports detailed massive gains in profits relative to the past four quarters, but once again that was not the main feature as far as I am concerned. So what was this momentous occasion?
Before discussing this matter I need to refer you back to my contentious argument that before the gold sector could really move into wave III of its bull market the JSE Gold index MUST break back above the peak of wave I in April 2002. I have already detailed that Goldfields in dollars in the US made a major break above its April 2002 peak to confirm the wave III in Elliott.
But the momentous event that occurred on the JSE this week is that Anglogold smashed above its April 2002 peak of R347 to currently trade at R371. It really is necessary to put this into its full perspective.
The break above April 2002 highs is not just a chart break to new all time highs. It is a confirmation that the Elliott wave format that I have continuously detailed is in place and that the heavy weight Anglogold has confirmed the wave breakout. But the real power behind this argument is that if one gold share has broken into, and confirmed, wave III ….. then so will the rest. In other words both Goldfields and Harmony are well under their April 2002 peaks and must be the best buys in the market as they must continue to run and MUST break above their R180 April 2002 highs.
At first sight this hypothesis should apply to Durban Deep even more than the others as at R11.80 it is way under its previous R55 April 2002 high. But all the new shares that were issued as collateral for loans, plus the total restructuring of the company into an offshore miner as well as the disposal of its North West mines to Simmers may indicate that it is a very different animal from that operating in 2002. I have this reservation relating to the relative performance of Durban Deep. It should certainly go with the main trend of the gold market but whether it will act in its original capacity as the most marginal of all shares is another story in view of the preponderance of Australasian operations that are far more dollar dependent.
My second major event of the past week was the weakening of the Rand. For the past two weeks I have been continuously detailing in the daily reports that I expected the currency to weaken, and this has started to occur. Couple this with a solid gold price around $560 and the Rand price of gold will move strongly. I am expecting the Rand to move back to the R6.40 level against the dollar and with my upside target of $595 for the next gold price move this will trigger a Rand price of gold at R3800 an ounce. These gold shares will continue to fly.
Although the gold stocks have taken centre stage the real star has been the price move in silver and the strength of silver stocks in the US. For some time I have indicated that silver stocks were undervalued. They are about to resume their bull trend into full value.
I return to my dictum for 2006. For portfolio performance it is essential to compare all sectors and share prices against the gold index, not an overall market index. Only those stocks that are out performing, or have the divergence signals to potentially out perform the gold sector should be included in portfolios. Forget about the rest.
Finally I am still waiting for the Dow to make up its mind whether to perform a bull upside break above 11500 or a devastating bear break under 10300. Until then I am not interested in general equities.
Last week I noted an unfortunate analysis by former South African analyst Alf Field on the Gold-Eagle site.
He based his whole analysis on the premise that his chart, reproduced above, was a 5 block reversal picture. A quick glance will show that it is completely inaccurate and a totally misleading chart.
I have circled numerous areas on the chart where there are only 3 and 4 block reversals. This is NOT a 5 block reversal but a 3 block reversal chart. This make a huge difference to any supposed target count that is proposed from this data. He subsequently acknowledged this unfortunate error.
But unfortunately he counted the squares horizontally across the breakout point level at around $470 and added the resultant calculation to this point for a target of over $4000 an ounce for the gold price.
Even elementary P&F analysts know from Cohen’s original work that horizontal counts are taken across the widest point of the base as detailed by the arrow, NOT the breakout point. In addition they are added to the LOW of the base, NOT the breakout point.
As far as I am concerned the correct count out of this 3 point reversal chart is across the major base illustrated by the arrow. There are 119 blocks @ $5 x 3 reversals. This gives 119 x $5 x 3 = $1785 to be added onto the lowest point of $255 for a target of $2040.
This is a far cry from the totally inaccurate $4000+ level that Alf Field postulated.
My office has redrawn Alf Field’s chart on the correct five point reversal basis and it gives a very different set of answers. This new chart has only a 54 block count across the base of $5 and 5 block reversal for 54 x $5 x5 = $1350 to be added to the low of $255 for a $1605 forward target projection. In addition there is a 23 block vertical count off the base that gives 23 x$5 x5 =$$575 to be added to $255 for a count to $830 as an intermediate level.
Thus I would look at $1600 as a far more realistic target than $4000+ for this gold price based on my corrected version of Alf Field’s unfortunately inaccurate point and figure gold price chart.
Frankly I am more concerned with bullion pushing above the trading range that it has been in for the past couple of weeks and breaking above $565 to attack the short term count at $595. But even this is not the main aspect of the gold market for South African shares.
This is the major chart for this week.
Anglogold has smashed above its April 2002 high and confirmed the move into wave III of the major long term bull market in gold shares. Wave III is, according to Elliott, unlikely to be the shortest. So on that basis alone there is still a huge upside still to come.
But the real clincher is in the RSI in the bottom frame.
The 2002 top was signalled by a classic sell divergence as the RSI refused to mirror the new highs of Anglgold’s share price. Not so today. Although the RSI is rocketing into overbought territory there are no signs of any dangerous sell divergences.
Also note that the share price did not hover around the R347 peak level but accelerated and smashed through it!!!
Any minor dips should be used to continue to buy this stock, and all gold shares for that matter.
But the bottom line of this data is that :-
- Anglogold has smashed above its April 2002 previous peak indicating that
- Wave III of the gold share market is in place.
- This in turn indicates a huge further upside potential for all gold shares
- And that stocks like Goldfields and Harmony are still way under their April 2002 highs and MUST play catch up.
This is a massive gold share bull market for investors. It is not a trading market but one in which to put money and leave it for some time.
Goldfields price on the JSE is shown with its RSI. The price is well under the April 2002 peak of wave I. It MUST go well above this to break fully into wave III. The fact that Anglogold has already proved this indicates that Goldfields will not be far behind. Once again note the sell divergence on the RSI in April 2002 and the fact that there is no such danger at this point of time. In fact Goldfields share price is in an accelerating trend.
Harmony is even further under its April 2002 peak and really MUST catch up and move ABOVE the 2002 high. Once again note the RSI sell divergence in 2002 and that there is no evidence of this at this point of time. Harmony is also into an accelerating trend. Forget the advice to take profits and wait for the correction. You will be waiting for next year!!
It is also worth noting that Harmony has turned into a serious positive mode relative to the JSE Gold index and should be the star relative strength performer going forward.
-- Posted Sunday, 29 January 2006 | Digg This Article
