Mining for Winners in Any Market

Archive for July 2010

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New Gold’s (NGD) Cerro San Pedro Mine Fully Operating, Presents Buying Opportunity

In Stock Movers on July 29, 2010 at 4:59 am

New Gold (NGD) has been a long term recommendation for my readers since May of 2009 when it was selling at $2.50.  I have always been impressed by the quality of assets New Gold owns.  New Gold is unique in the mining sector as they are leading the sector in increasing production and reducing cash costs.   In two years, this company has gone from being in debt to having a comfortable net cash position.

They have three operating mines in mining friendly jurisdictions and cash costs have significantly decreased.  Costs are expected to go down further when New Afton in British Columbia and El Morro in Chile get started.  Both mines have huge amounts of copper.   The copper byproduct decreases the cash costs of the gold to almost nil.  It becomes pure profit.  Their major development project, El Morro in Chile is one of the world’s major gold copper mines and New Afton is an exciting mine that has close to a billion pounds of copper reserve and a million ounces of gold.

The El Morro project is joint ventured with Goldcorp and is one of the world’s largest gold copper mines, with 6.7 million ounces of gold reserve and 5.7 billion pounds of copper. Like New Afton, this is also a large gold and copper mine that will add huge profits in New Gold’s future and decrease cash costs due to its high amount of copper.  This is clearly a company with impressive assets and growth ahead.

Recently the share price has come down due to a negative decision by a Mexican Court regarding one of their three mines, Cerro San Pedro, a massive mine with a million ounces of gold and 50 million ounces of silver.  It was over a technicality in the original Environmental Impact Statement, even though the Cerro San Pedro mine is internationally recognized for its standard on minimizing its affects on the environment.  Actually the whole case is over a land use issue not environmental issues.  Prior to this decision, New Gold received an injunction to continue operations while the legal issues are being resolved.  Due to past precedents, during the appeals process New Gold is likely to continue operations.

It is important to realize that this locale is dependent on mining as a way of life.  There are over 1600 jobs that are reliant on the mine remaining open.  The government certainly doesn’t want this mine shut down as it indirectly contributes half a billion pesos to the Mexican government, which is battling many problems including unemployment and crime. A skyrocketing unemployment rate in the region could be chaotic. The economic health of the region requires the mine to remain open and running.  Recently a newly elected council of landowners in the area are challenging the old council who started the legislation by attempting to drop all litigation against New Gold.

I believe this will be resolved in due time with New Gold revising the Environmental Impact Statement, or that the decision eventually will be overturned.  This may become a long, drawn out affair. However, I highly doubt that this mine will be shut down during this process as it would spur an economic disaster for the local area. 

New Gold (NGD) has been one of the best performing stocks in the mining sector.  They have a top management team, with directors who have built major mining companies and resolve minor setbacks.  I believe this will be one leading gold stock over the next several years because they have the assets and the financial condition to grow.  This pullback is a great opportunity for a long term holder.  Notice how it has pulled back to previous resistance at $5 which is now support.  Also it has come in play with the long term upward sloping trendline which it has touched 5 times successfully.  It is currently close to historically oversold levels.  Coming in play with support, coupled with the oversold conditions provide long term investors a prudent market entry point.  Subscribers who have followed my advice in my free newsletter at goldstocktrades.com are now up over 100%.

Disclosure: I own shares of New Gold.

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Gold At Long Term Trend Support, Key Level Highlighted

In Market Analysis on July 27, 2010 at 8:08 pm

Gold is now reaching long term trend support after falling the last few weeks as investors returned to bid up the Euro and equities.  The bounce in equities, especially financial, retail and real estate may be short lived as volume indicates that there is not much conviction from major investors on the upside.  Gold has recently been the safe haven as investors sought shelter away from the Euro when it was having the sovereign debt issues.  Now that those issues have been quelled, gold has had some selling and it has now reached an oversold  condition and a long term trendline which is acting as major support.

Stock prices move in trends.  In a bull market, it is quite often easy to identify the ascending bottoms.  Being familiar with trendlines allows the investor to enter long term bull markets when they are oversold and at key support.  An investor must always be aware of a stock’s underlying long term trend. This can be counter-intuitive and awkward, as most times when it comes down to support you have to think against the market herd and buy when others are selling.  It’s like buying a winter coat in the heat of summer. Gold is on sale, and presenting a low risk, high reward trade, but it requires non conformity with the crowd which is not an easy task for anyone.  Many of us like to be in what’s hot now situations, rather than seeing the bigger picture and entering into a trade when it is uncomfortable.

Gold is now at my buy point of the rising long term trend support line.  GLD touched that line 6 times, which signifies that this trendline is a reliable point of support.  The significance of this line is that it is not steep, which also brings a higher probability that GLD will find support here.   It is also oversold.  Continued weakness here and a break below this long term trend would be troubling and highly unlikely.  If there is a break most likely it would be exhaustive, meaning that it will shake out a lot of shares before the next move higher.  I do not see $1200 as a top in gold as there are no technical signs of a major top.

On the other hand, financial stocks may be finding key resistance here following a low volume rally.  As investors are digesting earnings reports that claim credit is improving and lending is increasing, consumer confidence is weakening and the unemployment rate is still very high.  A jobless recovery is what many are considering we are experiencing.  It seems that this recovery has been good for wall street while main street has not seen an improvement. The financials have found resistance at the 200 day moving average and have now failed four times, significantly breaking through this point of resistance.  Historically speaking, after a few failed rallies a major drop could occur.

At the writing of this article, housing has also had a significant reversal after recent data showing an increase in pricing in some metropolitan areas.  Investors are selling home building stocks on positive news, which  indicates that there is some caution over what the real estate market will resemble after the home buyer tax credit expires.  The chart shows a clear reversal and I expect that the rally in equities will be coming to an end and that gold’s poor summer performance will be different this fall as many weak hands were shaken out.  An explosive fall rally into new highs is expected as I still have a target of $1400 by year end.

Disclosure: I own shares in gold and silver mining stocks.

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Were The Stress Tests For Real? Volume Says Otherwise

In Market Analysis on July 26, 2010 at 1:06 am

As investors debate the validity of the stress test to gauge the financial health of European banks, the market has definitely signaled clues on the charts that we are nowhere out of the woods yet with the sovereign debt issue.  Since the European Crisis began at the end of April, the news out of Europe has rattled the markets on high volume sell offs, break of trends and moving averages.  It is interesting that now, with the stress test showing positive, investors are hesitant to jump back in.  This is indicating there are still other major concerns and that many of us don’t have faith in the stress test or published government reports.

One lesson I’ve learned as a trader is that if you don’t know what the trend is, don’t make a guess. Even a four year old child who looks at a price chart on gold can spot the uptrend.  However, in the  case of the major market indices- where you have a declining 5o day moving average below the 200 day moving average, and when you are seeing poor price volume action- it is best to be cautious. There can be impressive rallies before a bear market begins.  The Dow Jones Industrial Average is overbought and has crossed the 200 day moving average on light volume.  This has come after major bouts of selling from institutions including the infamous “flash crash in May.”

The way I measure how excited a market is through volume.  A break above key support or resistance on low volume indicates that the move was not convincing and should send warning signs as a “fakeout”.  This market is indicating that the moves higher are basically due to a lack of sellers and any further news items which may be negative will bring the bears back out.

Housing is an area which is seeing very little demand right now.  This is the industry which initiated the financial crisis we are in and it should be showing signs of strength in an economic recovery.  Much of the rise in housing was the result of government intervention in the form of tax breaks offered to buyers.  The rise in treasury prices and the weakness in housing indicates that many people are not borrowing.

Although housing appears to have a double bottom, I am a bit suspect of the lack of volume.  It would be premature of me to call a buy signal on housing, especially since it has not tested the 50 day moving average as resistance after the bearish death cross of the 5o day crossing the 200 day.  Housing needs to turn positive before any real rally can begin.  Right now housing stocks are still bearish and a convincing break above the indices would change my mind, but the probabilities of that occurring with these overbought conditions and lack of volume are low.

There was a report this week about executives of bailed out banks who were paid $1.6 billion dollars of taxpayers money.  As investors realize the staggering debt and the stagnant economy we are facing because of high taxes and increasing government intervention into the private sector, there will be major move away from cash and towards gold and silver.  At that point gold and silver could move significantly higher.  I believe that time may be closer than many sources would have you believe.

To summarize, some indexes have broken the moving averages to the upside but on low volume, as I have shown in the first chart.  To me, this indicates that smart money is staying on the sidelines until the trends are more observable.  Right now, my bias is that this rally is  a fake-out and I will not become bullish again until I see a break above 10,600 on the Dow as well as a bullish golden crossover of the 50 day crossing the 200 day moving average to the upside.  Volume is a crucial part of this equation.  If there is some major accumulation coming coupled with the 50 day moving average sloping higher, then I will reconsider my position.  However, at the moment I am still bearish on the markets and am bullish on silver and gold.

For timely updates subscribe to my free newsletter at http://goldstocktrades.com.

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This Trading Method Is About to Signal Another Buy On Gold and Silver

In Market Analysis on July 21, 2010 at 3:59 am

Trading against the market herd, also known as going contrary can be quite profitable, but timing is another challenge entirely .  Many contrarians make calls too early as irrational markets tend to stay irrational too long for most investors to stay in them.   Nevertheless, when used in conjunction with other technical tools it can provide excellent market entry points that are high reward and low risk when structured correctly.

In these past few weeks since my article on the death cross and why specifically this cross is quite bearish due to other technical signs, I have been bombarded with emails and links to Barron’s and Marketwatch which claim the death cross when back-tested is a contrary indicator with no statistical advantage.  Word to the wise, be careful of what you read in the widely published media reports.  A technician worth his salt knows if a death cross is real and if you need to be wary of a market downturn, similar to the market decline of 2008.

Remember that Barrons, CNBC and MarketWatch are in the business of advertising, which depends on their circulation.  Many of their ads are supported by major corporations who want their readers to be bullish rather than bearish.

What has concerned me lately in gold was the amount of media promoting the possibility of gold skyrocketing during the recent Sovereign Debt Crisis, where many fled the Euro to buy treasuries, the dollar and gold.  Today there was speculation that may threaten banks who are not lending.  This is becoming a deflationary crisis and investors are now concentrating on treasuries.  Mortgage rates are at all time lows, lending is drying up and housing starts are plummeting.  There are worries about U.S. Debt, higher taxes and increased government intervention in the private sector.  This shakeout in precious metals is giving investors another opportunity to jump into this bull market without being caught up in the hysteria.  To enter the trend with additional capital, it would be wise to buy when the conditions are oversold.

I have written about the use of oscillators to show short term buypoints in an uptrend.  I am seeing this happening again with gold.  Gold is about to hit an 18 month trend line, which has been successfully tested 6 times.  This is a valid and significant trend line that needs to be monitored closely.  Oversold conditions coupled with long term trend support leads to highly profitable times, as indicated in the chart below.

While learning to trade, I was taught to be a patient lion waiting for the best possible opportunity to pounce.  Lions wait intently until they are sure of optimal results: a  profitable trade.  Now as a trader of gold and silver, I see opportunity approaching.  The best way to play this market is by buying gold and silver when it hits the lower support trend line and is oversold, and selling as it approaches the rising resistance line.  This rule forces you to enter when the conditions are oversold but still in an up market, giving you very minimal downside risk.  Each time gold has rallied into new highs, the first correction to that trend line has been the counter trend bottom in the next major move.

Investors should be concerned if there is a break in that trendline as it has proven to be valid over the past 18 months.  There are many similarities with silver.

I believe silver is a great buy here at $17, especially as this is a true deflationary hedge.  Eventually the public will want real money, which is gold and silver.  Silver has the possibility of making a major run as it is way below all time highs.  During this time when it is oversold and coming in play with long term support, I would position myself for a move higher from the $17 area to $21 by the end of 2010.

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Using Oscillators To Time Stock Trades

In Market Analysis on July 15, 2010 at 5:45 pm

Fears of far-reaching government oversight in the financial industry and weak economic data coming out of Philadelphia are contributing to today’s modest decline in the market.  Many fear that this bill will hurt the financial sector as more government oversight is required.  The bank bill implies that the government can have access to control banks when they are in a vulnerable situation.

Weak economic data from Philadelphia also disappointed analysts.  I am concerned that the same people who termed “too big to fail” and bailed out these big banks causing huge amounts of debt for future generations are designing the legislation to “prevent” it in the future.

These last few weeks I have been warning subscribers about this decline and the possibility of a major drop following the very bearish death cross.  For timely updates and specific recommendation please subscribe to my free newsletter at my website at http://goldstocktrades.com.

After a six day rally U.S. equities became quite overbought.  I use oscillators to time market entry.  Oscillators are used to identify short term market extremes.  If the trend is moving lower, I will use the oscillator to tell me when the market is overbought for a short entry point.  The recent market bounce with six straight up days gave extremely overbought readings.  This means this recent rally went too far too fast.

The indexes now have downward sloping 50 day and a flattening 200 day moving average.  Poor price volume action continues to plague this market as the rally has been on low volume which shows a lack of support from institutional investors.  The slope of the 200 day moving average turning negative will confirm the death cross and a failure to break through the 200 day and continued weakness will be another bearish confirmation.

Yesterday, those overbought conditions were signaled and it coincided with the Dow reaching the 200 day moving average.  Today’s downward reversal from the 200 day is indicating that this counter-trend rally is completing.  Traders might want to think of going short at this point as most traders who were shorting when the index broke to new lows have covered.  It is also an opportunity to move to cash if you still have long positions.

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Analysis Of The Death Cross Sell Signal

In Market Analysis on July 12, 2010 at 3:05 pm

Moving averages are used by many traders to identify trends as they smooth out price action and act as key support on the way up, and resistance on the way down.  In fact, it is one of the most widely used technical indicators and extremely popular among high frequency traders because it is so clear cut and easy to program.  It allows the trader to ride a trend higher and to cut losses short.

The death cross is a popular signal that when used properly can cut massive losses short.  The death cross is so popular because many institutional investors use the 50 day moving average as a medium term average and the 200 day as the long term moving average.  Basically, the crossover method signals a sell signal when the shorter term moving average crosses the longer term moving average to the downside.  A buy signal is identified when the short term moving average crosses the long term average on the upside.

Crossover methods are easy to program into a computer. However, I must warn that one must use additional clues to create a sell signal.  There are frequent whipsaws and failures when you use the crossover method in isolation.

Chart reading is an art that requires discipline, experience and study.  Crossover methods used exclusively, such as by a computer program, will not produce the same results of an experienced technician who looks for other pieces of evidence to confirm the bearish crossover.

Similarly, back testing the results of the death cross using a computer program will not produce optimal results, since technicians look for additional signs of the breakdown than just the cross.  I was recently interviewed by the Toronto Globe and Mail on this topic and explained that one must be aware of this crossover and its implications.

Although some believe this signal is nonsense, and show back-tested data with computer models, it does not show the crossovers used in conjunction with other technical signals.

If the crossover signal is confirmed with a head and shoulders breakdown, a cross into new lows, and poor price volume action, which is occurring now, I will patiently wait on the sidelines and look for prudent short points when I see a price reversal and as the price comes up to certain resistance.  If all these signs are coming together the probability of a whipsaw is significantly reduced.

It is also important to note that a death cross is further confirmed if the 200 day begins sloping downwards after the break. This will act as resistance on the way down.

A look at the death cross of the Dow in January of 2008 showed many of the signs of a market top and trend change.

The 200 day which acted as previous support was violated on high volume and was followed by three failed railies at the 50 day moving average before crossing over.  If not followed investors would have lost more than 60% of their portfolios.

Now is not the time to look for bargains but to protect your portfolio by selling on any bear rallies.

I believe that this rally will be shortly coming to an end and we will continue to trend lower in equities.  Use these rallies to prepare for shorting opportunities.

Disclosure: Not currently shorting or investing in inverse etf’s at the time of writing this article.

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Shorting Stocks Explained: 50 Day Crossing 200 Day Moving Average Signals Major Market Drop

In Market Analysis on July 8, 2010 at 12:41 am

These past few days as the market indices broke through the head and shoulders neckline, I have had a barrage of emails asking if it was too late to buy inverse etf’s after my original short sell recommendation on June 21st 2010 .

My response to many readers is that if it is apparent to everyone to short that is the time to cover.  It is dangerous to short when stocks are going into new lows as often time there are powerful dead cat bounces where covering takes place.

No one knows how to sell at the top or buy at the bottom.  The only person who knows that is a liar. Often at tops every chart looks bullish, earnings are fantastic and every newsletter writer is bullish with new price objectives.  Similarly at market bottoms charts look awful, stocks are experiencing losses and every newsletter writer is telling you to run for the hills.  Be aware of the obvious because when it is evident to everyone that is when you have to be contrary to the market crowd.

Last week everyone was buying puts and shorting the market when it was an obvious head and shoulders pattern with a very bearish declining neckline.  The slope of the neckline determines the bearishness of the pattern.  It is important not to short when it is obvious and breaks the neckline.  I look at key areas to short on counter rallies.  Price volume action is very poor and I expect a few more days as it rallies to the resistance trendline and 50 day moving averages for additional short sale points.

The goal of a trader is to find key areas of support to buy when the stock is moving up and specific points of resistance to sell short.  Markets don’t top or bottom in a day.  Often there are several signals to show that a market trend is changing.  During those times there are often major counter trend rallies to shakeout the weak or inexperienced short  traders who bought as the index dropped into new lows.

The cross of the 50 day and 200 day is called the cross of death for a reason quite often there is a major break to the downside over the next few weeks.

This past week as many analysts and publishers recommended to go short as the index broke the neckline of the head and shoulders pattern.  I disagreed.  I would definitely not recommend shorting into new lows but shorting at the end of a counter trend rally or where there is overhead supply where many investors want to get out.

If you are looking for possible points to go short stay tuned over the next few days as I will be sending out an alert to free subscribers.

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Taseko's Prosperity Project, Future of Mining in British Columbia in Jeopardy

In Stock Movers on July 5, 2010 at 3:26 pm

Late Friday,  the Federal Review Panel came out with a recommendation that will be forwarded to the Prime Minister and his cabinet assessing the environmental impact of the mine.  The Federal Review Panel did not weigh in the economic affects of this project.  They made environmental recommendations for Taseko to take if the mine is approved.

I believe the Prime Minister, along with the Cabinet will support the British Columbia Provincial Approval based on the opinion that the economic benefits far outweigh the environmental impact.

The mining industry is crucial to British Columbia’s Gross Domestic Product and brings in over 8 billion dollars to British Columbia a year. A major concern is that the construction of new mines has been declining.  Many mines are closing and there has been a rapid decline of economic reserves.  This has seriously affected poverty levels and unemployment rates.

Prosperity is British Columbia’s flagship project that will bring in 400 million dollars of revenue a year and get many back to work.  Now the cabinet has recommendations from the panel on what Taseko should improve if the project is approved.  The project is very popular in British Columbia and I do not believe that the Prime Minister and Cabinet will go against British Columbia’s approval.  Their approval was based on the belief that the massive economic benefits would far outweigh the environmental loss to the local community.  If the Prime Minister rules against the Province, it will have devastating effects not only on British Columbia, but on Canada and its status as a friendly mining jurisdiction.  This status brings in huge amounts of investment capital which is crucial for economic development.

The news related sell-off creates another opportunity for investors to buy Taseko at bargain prices.  In January I recommended readers to take profit as it was time to sell on good news and when readers were up 250%. Now is the opposite time.  I believe this is the time to buy when everyone else is fearful especially if you are still holding shares.  Now is definitely not the time to sell into a panic.  Prosperity is far from over.

The news related break of the moving averages might appear negative but this decline has not shown to be high volume correction.  I expect there to be a move higher as many sold off with the news coming off the wire and do not understand the macroeconomic effects of this project.  Subscribers are still up over 100% even though many should have taken profits when I recommended and kept the 15% trailing stop loss which I also made sure for subscribers to have.  If you did not take profits with the 15% trailing stop loss and are still holding, I would recommend waiting until September until the Cabinet and the Prime Minister make their decision which takes into consideration other variables than the environment alone and not feed into the panic selling.

Disclosure: Currently do not own Taseko.