First things first, and apologies for those of a currently sunny spring-like optimistic bent but as I write this blog around midday on Friday, I am looking at the markets and wondering just how stock indices can avoid a crash. I do not see what else there is left in the tank either in terms of QE or fiscal stimulus and I am definitely leaning towards the emergency escape hatch in terms of existing long positions.
Speaking of crashes, it could be argued that for many of the embattled gold mining stocks, that we are presently enduring a slow motion crash. Since the yellow metal topped out in September 2011, the sector valuation disparity between implied gold prices from this group and the actual gold price has continued to grow to what is now actually historic records.
One of the weaker contenders in the recent past amongst this sector is the punter’s favourite Amara Mining (AMA). The technical’s remind me of the dreaded Ruspetro(no doubt much to Mr Cawkwell’s chagrin!) and bring to mind the “rule” that the most difficult markets and stocks to call are those that just moving in a straight line, either up or, sadly for holders, this instance ,to the downside. And so it is with Amara, that I have no hesitation in suggesting that firstly there is no point trying to pick a floor, and that in fact, looking at the price channel I have drawn, whilst this remains unbroken we are looking, in my opinion, at further losses… The message is clear and that is while there is no end of day close back above the November resistance line at 44p (also site of the 20 day moving average) that a sub 30p target is very much on the cards over the next month. Indeed, I doubt that any bounces here will be able sustain time above the 40p mark.
As our curry loving Editor is aware, I am very keen on chart gap signals, to such an extent that my high octane call here on African Barrick Gold (ABG) recently was to go short on the stock after the January 8th gap down – essentially without any other technical cross reference, to target a sub 300p destination. It is intriguing to me that the shares have now touched what was my most pessimistic target -the floor of a falling 2012 price channel heading as low as 250p. What I would say now, even though the stock is so oversold that a sharp bounce could occur at any point, that it seems perfectly feasible for fresh losses to be in store over the next few months, probably via a typical third and final gap to the downside that will do away decisively with the 250p low seen today and likely target towards 200p. An end of day close back above the 10 day moving average now at 270p is the favoured dynamic stop loss for those inclined to jump on this short trade.
Onto Petropavlovsk (POG), and I was looking for as low around 290p as recently as last week. As we can see from the daily chart of the Russia focused gold miner, my wish has become the stock’s command! The question now is whether we have seen the worst of the sell off here, or even have a bottom fishing opportunity is now on our hands? Well, the idea of catching this particular falling knife is certainly one that does not appeal to me. The charting message for Petropavlovsk therefore is that while there is no end of day close back above the green 10 day moving average – currently at 307p, then we are probably heading for the floor of the red April price channel at 280p, with a weekly close below this implying something as disastrous as a sub 100p target for later this year via a black February 2012 descending price channel.