Gold: Standing on a Very Tall Ladder

This will be a quick post that looks at the momentum situation of both the gold futures (/GC) and the US Dollar Index (/DX). We will note that gold is standing on a very tall ladder and that it will be nearly impossible for the precious metal to advance many rungs higher without some consequences. Meanwhile, the dollar rally is really running out of steam. Will this be the pause that refreshes the dollar to begin a new leg higher? Or will the dollar continue trying to walk through the quick sand?

Oh, before I forget. I have made an interesting breakthrough using the True Strength Index (TSI) indicator and both charts today will show you what it does. The breakthrough is subtle but none the less helpful.

For some time I have studied the behavior of the TSI at the turning points of its direction from up to down and from down to up. The short story is that very frequently the slope of the TSI changes on the very bar before it changes direction. That is, the mathematical slope consideration shows that slope decelerates just before the top, and accelerates just before bottoming.

Anyway, you can see how effective/ineffective this technique is. When the TSI is rising and the slope begins to decelerate I color the TSI red. And, when the TSI slope is accelerating at low turning points I color the TSI green.

Colors are otherwise used to define the four possible TSI conditions: rising above ZERO (blue), falling above ZERO (cyan), falling below ZERO (magenta) and rising below ZERO (blue).

Here is gold on a daily chart as it looked around noon today.

Click on any chart to ENLARGE

The blue trend line on the TSI presently shows the tall ladder the indicator has risen. Just to the left in the Dec - Jan time frame I have used a blue line that is the duplicate of the present line. These two lines have identical slope.

Futures are now trading and the candle not shown in this chart is for tomorrow March 19. Gold is just barely positive from today's close hours ago. But, the TSI has turned color to .... you guessed it, RED. 

Here is a chart of the US Dollar Index (/DX) as it appeared around noon today.

It is quite common for the TSI to rise above ZERO on a strong rally, then price will either hold sideways for a few days or even give up some of the gain, and the TSI will find itself right about at ZERO. When this happens it means that traders have, for the time being, neutralized the momentum in either direction. If the bulls were just playing possum, letting the price come back to them a bit, they will hit it hard and get the rally going even higher. The TSI often bounces around the ZERO reading. 

Gotta go to an evening soccer game. Keep an eye on things for me, OK?

John
tsiTrader@gmail.com

A Dozen Miners that Could Make You RICH!

Buy low, sell high. How many times have we heard that well worn saying? How about, 'buy when there is blood in the streets'? Or, 'sell when others feel greedy and be greedy when others are selling like hell', or something like that.

Well guess what. Here is your chance to have the last laugh no matter how sick and tired you are of getting the short end of the stick with this or any sector of the stock market. This article will quickly show you a dozen gold and silver miners that will give you the very opportunity to 'buy low and sell high' you have grown weary of hearing. The potential at this very moment is simply mind-boggling.

The mining sector, by every metric known to stock analysts, gurus and the rest of us, is now selling at a discount - an enormous discount - to the underlying product of their business which is, of course, mining gold and silver. Prices of mining shares are quite literally at lows seen maybe 5 times, if that, in the past 100 years. 

Companies and their stocks can be valued in a variety of ways and I don't think there is a particular evaluation method that singularly gets the gold star. But it has always made sense to me to ask this question: "if I bought this entire company - every single share of it - and then decided to tear the company apart, first paying the creditors then liquidating the assets at a fair market price, how much money would I then have?" 

And, "would I have more money because I bought the company at a discount to its fair tangible value or would I have payed a premium that entirely evaporates into a loss for me when the value of the pieces are completely sold off?"

Using this evaluation method, that is, finding gold and silver miners that are selling for less than their tangible value, I constructed the table below to include the 12 miners that I found to be priced by the stock market even lower than their tangible value. And if you look at their 2013 earnings projection you will note that most have decent earnings ahead - some even project explosive earnings.

The column Price / Book Value is where you will find the degree to which each miner is discounted. 

A reading of 100% would signify that a miner is selling exactly at its tangible book value. Most miners today sell well above 100%. For example, Goldcorp (GG) sells for 130% of book value. Barrick Gold Corp (ABX) sells at 230%, Newmont Mining Corp (NEM) sells at 140%, and Gold Resources Corp (GORO) sells at 730% of tangible book value. 

Here is my carefully researched list where everything is selling below book value. And should you do a little further research by looking at the charts of these miners, be sure you note the price of the stock when gold was nearing $1900 in 2011 - because once gold gets back on the bull and starts bucking higher, those prices could easily become your selling price.

Click on any chart to ENLARGE

It would only be fair of me to expose my bias to readers who are not frequent readers. I own Claude Resources (CGR) and US Silver and Gold (USGIF) in both my trading and retirement accounts.

Best always,

John
tsiTrader@gmail.com

My Vote for the 'Most Stupid Cheap' Miner in the HUI Index

I have written several posts recently about the HUI Gold Bugs Index using fundamental analysis techniques, such as earnings and projected earnings for each of the 16 gold miners comprising the index. And I have pondered the future of gold miners using technical analysis that has considered established price trend lines and the momentum of both index and individual component miners using the True Strength Index (TSI) indicator. Finally, I have offered my thoughts using something of a hybrid analysis technique. That being the supply/demand positioning of the hard ball professional traders, otherwise identified as the Commercial and Managed Money subsets and identified in the weekly Commitment of Traders Report (COT).

But tonight, this post will be different once again, though it will be about the HUI Gold Bugs Index - at least indirectly. Rather than discuss the HUI index at large, I am so disgusted with how stupid cheap this group has become I thought it fun to see if I could figure out which of the 16 is the 'most stupid cheap' (and by implication most likely to appreciate fastest when the selling pressure is exhausted).

If you would like to consider a huge miner with enormous capitalization, gigantic liquidity, lots of cash in its vault, positive earnings, diversified multi-national operations, a history of getting oversold then moving hundreds of percent higher within a single year and of course, selling TODAY at a stupid cheap price, then I think I just may have a stock you'll want to take a closer look at. 

With no further adieu, I give you my vote for the 'Most Stupid Cheap' gold miner of the HUI Gold Bugs Index. 

IAMGOLD CORP (IAG)

Let's take a look at the monthly and weekly charts, beginning with the monthly, and see what this cash-cow of an investment looks like.

Click on any chart to ENLARGE

This very morning IAG traded down to $6.04 then bounced to close with a 5.31% gain for the day at $6.55.

The TSI has provided a positive divergence BUY signal and downward momentum appears about ready to be declared exhausted.

The On Balance Volume (OBV) indicator shows that over the past 18 months an incredible number of shares have been traded on months when the price change was negative. On the face of it this may appear to some as a negative indication. But as we shall see in a little bit, this incredible record of selling could well represent the complete liquidation of every scrap of ammo held by a potential seller. In other words, capitulation. 

But let's move along to the weekly chart where I have much more information to share.

This chart is loaded with carefully researched data. On the technical side, the TSI suggests that the rubber band has been stretched beyond historic standards and ready to propel a rocket shot rebound. Indeed, following the 2008 bottom IAG blasted off from a low of $2.22 and did not begin to lose altitude until it reached $21.00 in just 14 months - a stunning gain of 856%.

This is impressive but not likely to happen again unless the fundamentals are solid. And guess what? Solid, they are!

IAG's price/earnings ratio (PE) of around 8 is the lowest of the 16 HUI gold miners. The price/book ratio is also the lowest of the pack. IAG sells at just 70% of its tangible book value. 

The stock closed today at $6.55 today but incredibly, the company has $2.65 per share in CASH. Earnings per share are expected to come in around $0.84 for 2012 and are projected, using an average calculated from the analysis of 21 analysts who cover the company, at $0.93.

IAMGOLD pays a 3.8% annual dividend.

Estimated cash costs for the company to produce an ounce of gold is $875-950. With gold close to $1600, the company has the 4th highest profit margin in the HUI index at 25.0%. 

Just days ago the company announced their intention to cut $100M of costs over the next 12 months. Their aim is to boost the Rate of Return (ROI) for stock investors. It's always appreciated when a company's management tries to do things to help their shareholders, right?

The stock float is 377M shares. This week IAG traded 55.3M shares. This amounted to fully 15% of the entire float that was traded just this week. Holy cow. Capitulation. (!)

And finally, during the past 4 months, as the stock was being relentlessly clobbered from $17 down to $6, numerous company executives (5 or 6 insiders) persisted in buying more shares for themselves - 120k shares, more or less. Depending on the price they payed one could guess that, at an average cost of say $10 a share, this was effectively putting $1.2M of their own skin into the game. Always a good sign, of course.

I encourage you to do your own due diligence, of course, before buying IAG or anything else I may research and discuss. And if you dig deeper than I and uncover something interesting, please don't hesitate to post your comment or send me an email:  tsiTrader@gmail.com

Keep in touch!
John

HUI Gold Bug Index - A New Line in the Sand (?)

It has always intrigued me how various moving averages, trend lines drawn on price and even trend lines drawn on technical indicators seem to have an almost magical spell over the ensuing price movement. This post will show you a new trend line that has appeared on the weekly price movement of the HUI Gold Bugs Index and I suppose we could think of it as the next 'line in the sand'. Whether there is any magic with this particular line is something we will all find out and soon.

We'll take a look at this trend line from a distance and up close, as well as take a peek at some new True Strength Index (TSI) indicator adaptations I have developed specifically for looking at the HUI Gold Bugs Index, and conclude with a chart and thoughts regarding the price movement of the Gold Futures (/GC).

I found this new HUI trend 'line in the sand' on the weekly chart when using the setting for log scaling. The endpoints are the 2000 and 2008 lows and the line is simply extended after 2008.

Click on any chart to ENLARGE

A little later we will take a closer look at this chart on the daily time frame to see just how close price is to reaching this trend line. 

But before we do I think the weekly TSI (7,4) shown in the lower indicator panel (above) is interesting. It shows the 4 most extremely negative momentum readings of the HUI in the past 15 years - 2000, 2004, 2008 and 2013. 

Our current reading, at -85.11, is a record breaker. Can you say 'over sold'?

And I think the appropriate question when looking at this information is whether these 4 extremely and historic readings were good times to BUY or good times to SELL? (Read my mind if unsure of the answer).

Here is a closer look at HUI using a daily chart with the trend line rising in blue in the lower right corner. It appears price is just a matter of 5-10 points from reaching this trend line at 335.0. The TSI indicator shows that a "picket line" BUY signal has been setting up for a while, but we are not quite there yet.

The following couple of charts of the HUI display a couple of customized uses of the TSI indicator. The top indicator panel shows the TSI (25,13) of each mining stock (16) that comprise the HUI index. The lower indicator panel considers the movement of each stock's TSI - whether rising or falling and whether above ZERO or below ZERO - and by assigning a different value for each condition a histogram is plotted.

If all 16 stocks have a TSI that is both rising and above ZERO, the histogram reaches +32. For the opposite condition, -32. 

Here is the weekly, followed by the daily.

And finally, here is a chart of daily gold futures (/GC). The TSI (7,4) is set up nicely for a trend line break BUY signal with a modest uptick in price.

The most recent Commitment of Traders (COT) reports regarding gold have been extremely interesting and have an explosive component already loaded and locked into place. You have the smartest of the bunch, the commercials, positioned for gold being at the bottom of this lengthy correction. They are hedgers by nature and quite literally always net short of gold.....but it is the degree to which they are short that tells their story. At present their net short position is minimal and very similar to their correct positioning at the 2008 bottom. The commercials have apparently seen no reason to increasingly hedge their long positions with gold in the $1575 area. Which is also to say that they are not terribly concerned that gold is going much if any lower.

Meanwhile we have the Managed Money group who has had a considerable long gold position for some time but recently has been adding thousands and thousands of shorts to their position. They have not been selling their long contracts - rather they have been hedging their long contracts with these shorts, presumably on the fear that if the bottom falls out at $1523 their long positions will be protected. Perhaps we could think of their excessive short positioning as 'enthusiastic insurance' purchases. 

And a post or two back I noted that when this group (Managed Money) has built a huge short position they have always done so at exactly the wrong time.

So picture this. The commercials are the ones, if anyone, who actually have bullion. Do you seriously think the Managed Money group has any bullion? I didn't think so.

So when the Managed Money dopes find out gold is not going below $1523 what do you suppose they are going to have to do with all those shorts they own? Do you think they will deliver the bullion when their contracts are closed or do you think they will become buyers of more paper gold on the long side to cover?

Right. They will become the perfect fuel in the incinerator that burns short paper contracts into charcoal. And all the other groups, including the commercials, will turn up the heat and watch them wither and crackle in the flames. This is the kind of unusual setup that causes those explosive blasts upwards in price one notices once in a while, seemingly for no reason. It is temporarily caused by a lack of liquidity - there are so many shorts running for the door to sell their paper that only when price is 'favorably adjusted upwards and immediately' do the shorts get their trade covered.

It is a bull market, after all. Patience!

HUI / GDX - The Fuse is Lit

The HUI Gold Bugs Index is comprised of 16 large gold mining companies. They have been taking a beating for quite a while and I have been waiting to see a particular technical setup to identify to ideal location for a final bottom. Thursday's close provided that setup and I would like to show it to you in this post.

What follows are daily charts of 8 HUI miners and the Market Vectors Gold Miners ETF (GDX) that are simultaneously providing a positive divergence BUY signal. A number of the remaining 8 HUI Gold Bugs members are literally inches from yielding the same signal.

Also, I have identified the trend line break BUY signal location for each with a green line. When price reverses direction upward it will trigger a confirming round of BUY signals.

The fuse is lit. One good reversal of sentiment should set off a chain reaction that will bring a smile to my face - and maybe also yours.

Cover you ears.