Wednesday, May 30, 2012

BUY NUGT $8.80 GSS $1.06 - Gold/Dollar

Two more days of school left - HOORAY!!! 

A couple weeks ago I bought a slug of Direxion Gold Miners Bull 3X ETF at $8.80 (NUGT), made the chart then did not get around to posting the trade. Yes, it's been that kind of month (and Year #30) but it's nearly over, thankfully.

Today I made a new purchase of Golden Star Resources (GSS) at $1.06. The daily chart had a favorable trend line break BUY signal on both the True Strength Index (TSI) and the Money Flow Index (MFI) indicators.

I had been eyeing this gold miner and a couple others for several days and decided to just buy and prepare to sit.

Several fundamental issues interested me in Golden Star Resources (GSS). First, the stock sells at only .6X tangible book value ($1.06 vs. $1.71). That's cheap. There are only a few other miners on the AMEX in this 'discounted book value' range - JAG, AUMN, CDY, GBG and CGR. Of these comparables GSS seems to have the most favorable positive earnings projections going forward into the next couple of quarters, and additionally has ZERO long term debt.

Second, of the $1.06 share price I payed, the company has 44 cents in CASH. So, subtracting out the cash per share, I actually payed 62 cents per share for $1.27 of tangible gold. ($1.71 - .44 = $1.27) ($1.06 - .44 = .62). That is a true bargain considering the company is in production and the upcoming quarters are expected to be profitable.

Next, I considered significant insider buying of GSS in the past week and an unusual company reiteration of favorable guidance for the upcoming quarters. 

And finally, GSS is included in both Market Vectors Gold Miner ETFs - GDX and GDXJ. My thought is that once the US Dollar tops, miners and gold should explode higher. And, as the demand for both these ETFs will likely strengthen, so will the stock price of GSS.

A couple of weeks ago I wrote a post that rather apologetically mentioned that gold could, from a historical consideration of C-Waves, have further to fall. My two issues of concern were the consistent retracements of all C-Waves in excess of 50% during their ensuing D-Waves (this one has only retraced 38.2%), and the trend line of this C-Wave did not appear to have broken, as was the case in all preceding C-Waves.

Then last evening I got the bright idea to change my ThinkorSwim price chart display to 'Log Scale' and see what that did for my gold chart. To my surprise, it changed absolutely nothing except the current C-wave trend line - which appears to have indeed been broken 16 trading sessions ago. 

So perhaps the plot has thickened and gold is in much more of a bullish situation than I previously thought. 

In the first 15 minutes of NYSE trading this morning gold was pushed down to $1532, then rallied nearly $40 to $1571 before losing a bit of steam to settle at $1564 - this despite a monster rally in the US Dollar. That got my attention.

Speaking of the US Dollar, at present it is 4% above its 200 dma. The buck achieved this metric this past January then went into a steep correction. Last late-September the buck nearly reached the 4% mark above its 200 dma before falling into a sharp correction. And in June of 2010 the dollar made a major peak and was able to hold between 5 and 7% above its 200 dma for a matter of 4 weeks, then fell precipitously for the better part of 5 months.

In each of these three occasions, interestingly, gold behaved differently. In December 2011 gold first reacted by plummeting from $1750 to $1550. Then just days before the US Dollar peaked, gold began a 2 month rally from $1550 to just under $1800. In early September 2011 gold peaked above $1900 and managed to hold above $1800 for several weeks while the dollar put in a sharp rally. With only 9 days left in the buck's rally, gold finally gave up the $1800 level and promptly plummeted to reach the $1535 level. The June 2010 episode saw gold essentially tracking the dollar.....rising from $1140 to $1250 as the dollar mounted a huge rally that then came crashing down (with gold sympathetically retreating back down to $1160).

So while it is true that the US Dollar and gold tend to move inversely to one another, it certainly is not true all the time.

Anyway, here is a current look at the US Dollar Index with an eye on the True Strength Index (TSI) momentum indicator, Gold futures, and the % the Dollar is currently above its 200 dma.

My TSI Trading record has been updated.

Best always and keep in touch,


Tuesday, May 15, 2012

Gold Going Below $1430? $1395?

It feels almost ridiculous and nearly irresponsible for me to suggest that gold will fall to below $1430. Personally, I think it has fallen way too much already. In a very short period of time the value of my holdings in mining stocks have been cut in half and I have no interest whatsoever in seeing gold tank even further. 

But for what it's worth, I see a good possibility that gold has further to fall - much further. 

Last summer I did some research on Gold C-wave Tops and D-wave Retracements. I think I was able to boil down the most important statistics and make some sense of the topic generally. Some of those findings include that the range of C-wave corrections (D-wave) is from 54% to 89%, that all previous D-waves corrected 50% within the first 32 trading days, and that most D-waves were in the range of 40 days, with the exception of the 2008 nightmare specimen which was 152 trading days.

One of the things I did not mention in that study is the fact that every C-wave top, with the exception of the 2002 specimen, was followed by a (one) left translated intermediate cycle.

Anyway, at the time I did this study it never occurred to me to specifically determine whether the C-waves ever/always/sometimes break their trend lines within the D-wave corrective phase. 

As you may now be guessing, this is something I have been looking at very carefully today. It turns out that every C-wave  has indeed broken its trend line during its ensuing D-wave. And it turns out that our current C-wave has yet to break its trend line. A price south of about $1430 seems to be the qualifier.

I'm going to show you a chart of each C-wave from 2002 and have added the relevant trend line on each.  I have not taken the additional time to identify (label) the repetitive ABCD pattern, but I have indeed considered each very carefully.

Oh, before I forget, the current C-wave top was followed by not one, but two left translated intermediate cycles. That has been a new twist which I imagine should not be too surprising considering that this C-wave dwarfed all previous specimens.  

Also, at today's closing price of $1544 this D-wave has nearly retraced 38.2% of its C-wave. A price in the neighborhood of $1520 would make a 38.2% retracement. The 50% retracement level, should this correction decide it needs to make the minimal historic retracement, comes in at $1395.

Will gold make it low enough to break its trend line? Worse yet, will it make it to the 50% retracement?  

Beats me. I sure hope not!

In any event, I am absolutely NOT selling any of my mining positions for a loss. Period. I learned a very good lesson in 2008 and plan to make it pay me back this time. 

Best wishes for your success, always.

And now, those C-wave trend line charts.

Click on any chart to ENLARGE

Wednesday, May 2, 2012

BUY CGR @ $0.89

It looks like Direxion's Gold Miner Bull 3X ETF (NUGT) closed nearly 7% lower today than my sales price yesterday and that I was very fortunate to avoid that draw-down today. 

Looking at the True Strength Index (TSI) yesterday using the (7,4) setting I noticed that the TSI slope on gold (/GC) appeared to have temporarily topped and the stock market (/ES) TSI slope had flattened.  Today both of these metrics indeed turned lower and NUGT deflated as I feared may happen.

Turning to a major holding in my retirement plan, I noticed that Claude Resources Inc (CGR) has been setting up nicely and so I decided to re-allocate my cash with a purchase of CGR at $0.89.  The stock is now selling at well below book value and the earnings projections for this and next year continue to be strong. 

My TSI Trading record has been updated.

Tuesday, May 1, 2012

Sold NUGT @ $13.40

I sold my entire position in Direxion Gold Miners Bull 3X ETF (NUGT) today for $13.40 and a modest 7.2% gain. My best guess is that the miners are going to continue to rise, but taking a profit was what seemed like the thing for me to do for today.  

Today is something like Day 20 of Gold's Daily cycle and looks like it is now forming the handle of a cup with handle pattern. So, I do not intend to stay away from this long miners trade for long.

My TSI Trading record has been updated.