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-- Posted Monday, 3 March 2003 | Digg This Article
Rhonda Brammer did a fine hatchet job on Royal Gold (RGLD) in the latest Barron’s, wielding figures supplied by an investor who evidently considers the stock wildly overvalued and who has been short it. Wildly overvalued Royal may have been on Friday, but when the dust settled yesterday, it was very considerably less so, having fallen from a high of 19.75 to an intraday low on Monday of 12.70. That represents a drop of nearly 36 percent more or less overnight, and of 55 percent since Royal hit a record $28.80 peak exactly a month ago. We hold no position in the stock, nor have we advised any trades in it since listing it in MarketWise Black Box when it was peaking a few weeks ago. To the extent we think Royal will recover and go on to new all-time highs, we should perhaps be grateful to Ms. Brammer for bringing it back down to bargain levels. But that will be scant consolation to anyone who has been holding the stock for long enough to see it soar then crash, or who aquired Royal recently enough to have paid more than $20 for it. At the bottom of Monday’s spectacular dive, which began with a 4.24-point opening gap, Royal was revisting the depths of a consolidation zone it carved out between May and August of last year. Perhaps that is where it will find traction; but if not, the round-number support of $10 would be our next choice. Our most recent forecast for the stock had allowed for a “healthy” pullback to as low as 16.45. That would have represented a technically congenial 0.618 correction of the steep run-up between late July, when the stock sold for about $9, and February 2, when it hit 28.80. “Healthy” it may have been, to the extent stocks do not usually fall so hard unless they have been pumped to absurd extremes. Trouble is, the Barron’s source would probably still consider Royal’s shares ridiculously overpriced, since, using his discounted-cash-flow model, Ms. Brammer has calculated that the stock “should” be selling for only $5.14 a share. We still hold to the view that, years down the road, when this still-adolescent bull market in gold finally ends, even the motliest bullion stocks will be far more overpriced than Royal was at $28. In any event, Royal has surely earned a place on our Dirty Dozen list – which, incidentally, will be slightly delayed in coming, since we’ve decided to publish it at www.MarketWise.com and must create a proper Web page for this purpose. The list is intended to demonstrate that the unworthiest gold stocks we can identify today will perform at least as well over the next few years as the mangiest dot-coms did during their heyday. [The + symbol means we have an open position, while $ means there is actionable advice.] Gold
APR GOLD (349.50): Monday’s small gain in the futures represents a bullish divergence from the editorially induced losses suffered by some gold stocks on Monday. We’ll breathe easier once the April futures have closed above February 28’s high, 351.50, or trade more than $1.00 above it.
+ GG (10.96): We hold 200 shares for an average 4.65. Continue to bid 10.46 for 200 shares. Goldcorp needs to rally above 11.80 to get out of jeopardy over the near-term.
 
DURBAN DEEP (NasdaqSC:DROOY) : Quote - News - Profile - Message Board - Website
+ DROOY (3.37): We own 600 shares for an average 4.38. Our target for the short-term correction cycle is 3.19, a hidden pivot, but we won’t attempt to buy any more shares down there, since 3.00 at that point may start to exert magnetic pull.
RGLD (13.10): See today’s Trading Notes for our thoughts on Royal. From a hidden-pivot perspective the decline left the stock in uncharted waters, so we’ll make no recommendations for the moment.  
DJIA (7837.86): Our 7994 rally target lay nearly 13 points beyond the actual high – we missed by a country mile, that is, for reasons most mysterious. Today, the closest hidden pivot worth paying attention to lies just below, at 7821.57. If it’s breached by more than a couple of points intraday, we’d infer that further weakness lies ahead, to a worst-case low over the near term of 7661.87. E-Mini S&Ps (834.50): We nailed the intraday high yesterday with two-decimal accuracy, providing a short-able target that perhaps some of you were able to use profitably. With the futures entering their third week of a tedious shuffle, there are no compelling targets on offer for today. $ MAR BONDS (115.28): Our minimum upside target remains 116.13. If you’ve held long positions on your own initiative, profit-taking was prudent at 115.07, but at least two thirds of any remaining position should be exited between here and the new target. OEX (422.18): The OEX telegraphed weakness when it failed yet again to hold above a hidden pivot at 426.15. If and when it musters this modest feat, we’d infer the index is ready for another small leap, to 431.24. A close above the latter number would leave the OEX in good position for a run to 438.61, our most-bullish scenario for the next few days. QQQ (24.65): Our upside targets are unchanged -- 25.80, or if any higher, 26.13. Targets or not, the rally has been too herky-jerky to trade.
MAR NASDAQ 100 (993.00): We had no opportunity to get short at 1037.50, since the futures peaked at 1024, well below this hidden-pivot target. Today the target is still 1037.50, at least in theory, but we’ll make no specific recommendation, since we are not inspired to think that theory will carry the day.
-- Posted Monday, 3 March 2003 | Digg This Article
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MarketWise Black Box is published on weekdays 240 times per year. Copyright 2003 by MarketWise. For further information please go to www.marketwise.com. All information was gathered from sources believed to be reliable The risk of loss in futures, stocks or options can be substantial; therefore only genuine risk s should be used for such trading. Futures, stocks and options may not be a suitable investment for all individuals, and individuals should therefore carefully consider their financial condition in deciding whether to trade. Commodity option traders should be aware that the assignment of a short position will result in a futures position. Past profits are not indicative of future profits.
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