Monday, March 7, 2011

As Silver Continues to Soar, This Miner Is Just Beginning Its Monumental Move

By John Townsend, The TSI Trader

Coeur D’alene Mines Corp (CDE:NYSE $34.70) is just beginning its monumental move. I believe we may see its share price double in the next 8 – 12 weeks.

This article will provide you with an update of silver’s current parabolic move; detail the underpinnings of Coeur D’alene’s incredibly strong fundamentals going forward into 2011, and expose the powerfully bullish technical outlook for its stock.

Click on the chart to ENLARGE

Silver is presently making its fifth parabolic appearance of this secular bull market for precious metals. Our first chart is a weekly look at the World Silver Index (XSLV) dating back to 2004 and including the three previous silver parabolic moves of 2004, 2006 and 2008. The 40 week moving average is shown as a proxy for the 200 day moving average.

One of the metrics to observe is the degree to which a silver parabolic ultimately rises above its underlying 200 dma. Another consideration is the length of consolidation time that precedes the parabolic move. When I combine these two metric considerations and apply them to our current silver parabolic, it is apparent that silver’s price rise above its 200 dma could match or exceed 65%. This projects a silver peak in excess of $50. In fact, as the consolidation preceding our current parabolic has been massive, $50, in retrospect, may turn out to have been too conservative.

 This second weekly chart of XSLV considers our current parabolic using a different metric – the midpoint consolidation. There is a tendency for parabolic moves to exhibit a resting point that divides the move into two equal legs. And we observe that silver has now cleared its consolidation phase at the $32 level and is headed towards a completion of this pattern at $48.

Click on the chart to ENLARGE

The takeaway from these observations is not to argue just how high silver will soar, but to simply note that silver is going much higher, quickly and now.

Coeur D’alene (CDE) is poised fundamentally to skyrocket right along with silver. The company has three mines that are now in full production and the 2010 Q4 results announced last week revealed that analysts were significantly underestimating the company’s new earnings power. Analysts expected the company to earn 33 cents per share and instead the company reported quarterly earnings of 56 cents per share.

Some highlights of Coeur D’alene’s key fundamental data include: $3 Billion market capitalization, shares outstanding 89 Million and holding flat, selling at 1.5X book value, 2011E Price to Earnings ratio of 12 (which is about half the average PE of other large silver miners), and 2011E Price to Cash Flow ratio of 7 (also about half the average of comparables).

Consensus estimated earnings for 2011 are $2.28 per share vs. 2010 $0.39 actual earnings per share. Cash flow from operations (chart below from the Coeur D’alene website) is expected to more than double in 2011 from 2010.

Click on the chart to ENLARGE

Debt levels are trending downward quarter after quarter while cash levels are trending strongly upwards. For 2011 the company projects that capital expenditures will decline, while production of both silver and gold will increase, as will sales.

Regarding the issue of hedging the CEO, Dennis Wheeler, commented during last week’s conference call, “I just want to make it clear that Coeur has the policy of non-hedging in silver production. We know that our investors like you are believers in the continued price appreciation of silver and gold and we want our investors to be able to maximize their investment and leverage to the metal so we will not be hedging any of our silver”.

 To summarize current and projected CDE fundamentals, it is somewhat difficult for me to imagine a more ideal setup. Projected earnings and cash flow growth are explosive, current market valuations in terms of book value, price to earnings and price to cash flow are in the silly cheap category, and last quarter’s performance puts the sting to any who may have doubted Coeur D’alene’s ability to deliver. I should add that ownership of CDE shares is literally a list of the ‘who’s who’ of investment heavyweights – ETFs GDX and GDXJ, as well as Van Eck, Dimensional, Vanguard, State Street, JP Morgan Chase and Blackrock.

The following weekly chart of CDE reveals that several months ago stock price broke above a 5 year long down trend resistance line, has since consolidated above this line after a successful retest, and is now continuing higher.

Click on the chart to ENLARGE

The chart also details the significance of the $28 price level which was a support level for CDE price from 2004-2008 and has since 2008 been a resistance level. Until last week that is, when CDE took on that $28.00 price level and blasted right through it, closing the week at $34.70. Technically speaking, this is the recipe for beginning a monumental move.

The 2004 and 2006 silver parabolic moves took CDE from being a $28 stock to the $75 neighborhood and quickly. As I believe the current silver parabolic is likely to surpass the magnitude of each of the four preceding silver parabolics, the fundamental underpinnings of the CDE stock are nothing short of both impressive and ideal, and the technical setup is exactly as one would hope, I consider it a realistic possibility that CDE could again achieve a $75 price target before the current silver parabolic expires.

 One final thought with a chart. The overhead resistance (selling pressure) should be reasonably mild as CDE has not traded any shares above $28 for three years or so. Not all, of course, but most sellers of the shares now are sitting with a profit and are not particularly motivated to sell provided price continues higher. And for that matter, this chart shows us that shareholders who bought 4 and 5 years ago are not holding a lot of shares anyway.

Click on the chart to ENLARGE

Disclosure: I own CDE and look forward to participating with CDE throughout the concluding leg of this silver parabolic.

 I wish you a great week of trading and invite you to peruse my website, The TSI Trader, where you will find a focus on both the techniques of using the True Strength Index (TSI) indicator for accurate trading signals and the secular bull market for precious metals.

John Townsend


  1. John,
    I'm glad to see that you think silver is going much higher, because yesterday, Monday I added to my position in SLV only to see it drop back. I feel certain it is heading for 40 and I don't want to miss it. Sunday in foreign markets it just blasted off without pulling back.
    Your chart here is good, but, what about the round numbers? I've been into silver for a while now, and it seems there is something to certain price levels. Seems like silver moves in approximately 5 dollar incriments. 5, 10, l5, 20, 25, 30, not staying to long at 35, and now looking at 40. 40 might mean 39 or 41...
    what do you think? Is 40 going to be an important number coming up??
    Do you follow any energy commodities. In particular Natural gas. I'm seeing a divergeance in some the osclators.

  2. Hi John,

    CDE has been down ther last while while silver is still going up, u still think cde is a good investemt for the final ride of this cwave?