We made a good trade with this stock more than a year ago. Then we recommended getting out conservatively at $18 (see previous blogs). The stock peaked $3 higher but for the most time has gone down nicely. The other day it lowered guidance. Also it has “cash” cost (the equivalent of variable costs, I guess), of $1253 per ounce. If other costs are included little is left at todays gold price.

Presently 2 different counts present themselves. The one in black is the simplest and would suggest the drop is complete. The purple one needs a substantial rebound before dropping lower (the lows in Nov. of 2008 were close to $1). Ergo, in both cases a nice bounce should develop  with a reasonable expectation that at the very least the gap should be closed. A buy with a stop at, say , $4.

Here are the two charts, then  (May 17) and now;

Despite last week’s comments we would sell here. The simple reason is that the triagle can be interpreted in two ways (green and red). The green and original one was more compact and allowed for a higher thrust. Both the green and red interpretations are close to being complete. We like “the-bird-in-the-hand” approach so we are happy to take the profit $17.50-$13.90 = $3.60 or about 26%.

Fundamentally we do not like the fact that Mr. Bernanke has, at last, acknowledged that his QEs could actually have had an impact on commodity prices. With that, he has effectively painted himself in a corner.

In any case, this stock should drop back to the base of the triangle so there is no good reason to stick around.

Here is the May 17th chart as a refresher;

The target was tentatively and conservatively set at $18 (triangle mouth measurement and trend-line). This target does not take into account any rise due to the lapse of time. Here is where we are now;

We got to $16.45 so there is more to go. Often, but not always, the stock peaks right above the apex of the triangle, that would allow for more time. Also the trend-line ( one point is rather precarious!) is at around $19. The triangle’s mouth measurement would put the top at about $18.50.  Your choice!

Get out with a 30% gain when the target is reached. The stock should drop back to the base of the triangle, and depending which scenario holds (blue or red, and possible – not shown- a large wedge wave 5, but there is no overlap.) it could be game over for quite a while.