$1001 is a nice price for this stock. So is the p/e but then the company grows by 25% a year so that may not be that outrageous. What is unique about this stock is that it is the only S&P stock to have traded above the $1000 mark. We would sell it, or , alternatively, maintain a very close trailing stop-loss order, simple because it is possible to count a clean 5-wave sequence up into this high. The normal range for a correction, if one occurs, would be to somewhere between $600 and $400.
These were two of the last holdouts that we could come up with. The Russell 2000 on semi-log scale, which so far has not made a new high and the FTSE . The clear 5-waves down, now some 4 months, ago still stands. Bernanke et al do not seem to be satisfied with the results so far. The Russell this year alone is up another 38% or precisely one percent for every week of the year to date (38). To get a similar reward you would need to own 10-year treasury paper for about 19 years which just goes to show how grotesquely things are being distorted. According to Bloomberg corporations in America are now the beneficiaries of about $700 bln. in annual interest cost savings compared to 5-years ago when rates were already manipulated down by Greenspan. It is now not that difficult to argue that the largesse of the Fed’s $85 bln. flows directly and in its entirety into the coffers of corporate America, without any discernable effect on unemployment. Why all this helps remains a mystery.
Detour Gold is totally Canadian, somewhere in Northern Ontario near Timmins. It promises to become one of the largest gold mines in the country having only recently started actual production. It’s cash costs run about $749 per ounce and things are going more or less according to plan. No unexpected expropriation, no murderous rebels in the country side and no political or environmental issues that cannot be resolved sensible. We like the absolute perfect symmetry in the drop from $40 to $7 (Eldorado is close but not that perfect). No lets suppose the investment can be amortized at about $150 per ounce over the 21 year expected life of the mine. The all in costs would then be roughly $900. Should gold drop below that the mine is worth nothing. At $1900 an ounce, about the all time high, the stock was priced at $40 and supposing that the stock was correctly priced at the time , it follows that the stock loses $40 over $1000 per ounce of gold, or $4 per $100. At $1300, the present price of gold the stock should then be worth $1900-$1300=600, 6x$4 =24 which then gives a present stock price of $40-$24=$16. At $9/10 today the stock is undervalued by $6. It is hard to rhyme this with the ubiquitous a-b-c pattern displayed on so many gold stocks but then in EW it is not always true that if it is yellow, quacks and floats on water that it is a duck. The chart below gives a possible alternative at least for this stock;
A whole slew of variations to this pattern are possible, certainly below $8.24 this starts looking fairly attractive. Here are some facts on this company from its website;
We used ABX but it really does not matter all that much which gold mining stock you chose. Essentially we perfectly caught a plus/minus 40% corrective move, well in advance. Now there remain two possibilities. First this is all there is to it and we will continue to new lows (preferred). Alternatively this is only part of the correction; it could become more complex in which case a “flat” would make the most sense. If so we are now in the B of a larger A-B-C. The B should be done in three waves. It may be complete right here or could go lower yet. Then C (in 5-waves) would take the stock back up to a little above $34. The most time consuming complex correction would be a triangle. Depending on the overall count, this could be viewed as a wave 4 and this initial a-b-c should be seen as the first and largest leg up in the triangle. Fundamentally a triangle here would, I think, reflect the tug of war that is going on at the Fed. with respect to tapering/tampering. Bernanke’s exit will perhaps force his hand, otherwise his successor may signal his own preferences in advance. The chance of getting another academic drenched in Keynesian nonsense who would embrace this same course are nil. The whole thing would end up as per below. 5th wave are often the largest when it comes to commodities so a low at say $18 or so as reflected in the chart may be much too high.
There are a few objections that could be offered against this scenario, overlap being one of them and also the top is not the true top, but this is only intended as a road map of sorts.