Keep an eye on Newmont Mining!
A tell in poker is a change in a player’s behavior or demeanor that is claimed by some to give clues to that player’s assessment of their hand. The same can be said in using model price charts. A user of model price charts is looking for ‘tells” that may point to a change in trend and obviously higher share prices sometime in the future.
My ‘tell’ in gold stocks is Newmont Mining Corp.
Let’s start with our long-term model price chart on NEM.
Newmont Mining Corp. with monthly price bars, EBV Lines (colored lines) and model price (dashed line)
As you can see from the above model price chart Newmont has been in a downtrend for two straight years and the company is approaching a secular low made in 2008, some 5 years ago. This model price chart screams at me ‘bottom’ and it has all the qualitative stuff I look for. A universal despised sector where investors are throwing in the proverbial towel where merchandise is priced at wholesale prices. I love buying stuff at wholesale, never retail (see blog). That is the most fun and it gets me up every morning; buying stuff that other investors/traders are throwing away. ‘One man’s trash is another man’s treasure’ is an idiom that certainly puts a spring in my step and hopefully yours.
My other qualitative test is asking, in passing of course, other market participants what they think of gold stocks as an investable thesis and stand back so I don’t get slugged in the nose. Granted only about half of the people I have talked to about this wanted to cause me physical harm. This probably means the gold share sector is still in a downtrend and more financial pain is warranted for the other half of the gold bugs to throw in the towel. So we will see.
Beware of the Value Trap!
Just because a stock or an equity sector is cheap doesn’t necessarily mean that investing in this company or group is advisable. I prefer to wait for a catalyst and with model price charts this is easier said then done. All I have to do is wait for a positive transit of one of our EBV lines. Again having a look at Newmont’s model price chart – short-term chart this time, I would wait for a positive transit of EBV or $25.83 as shown in our model price chart below.
Newmont Mining Corp. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)
For those interested, a daily updated chart of NEM subsequent to this post will be maintained on Facebook, here.
So a possible ‘Value Trap’ for investors is unnecessary. A positive transit will alert investors that fundamentals are turning positive or something positive is occurring in the sector. Easy.
Maybe, as I said, I’m too early in my campaign. Maybe more pain is necessary for investors holding gold shares. Maybe Newmont trades down to EBV-3 giving opportunistic investors/traders even more of a possible upside or profit.
Irrespective of what occurs, I can strategize to my hearts content because our EBV lines and their respective values can give me easy entry/exit prices that give me a very high probability for profit. Newmont is my ‘tell’ and possibly my trading vehicle for a sector turnaround where everybody else is looking the other way.
“It’s though to make predictions, especially about the future”, was one of Yogi Berra expressions and one of my favorites. Who knows maybe gold bullion does go to $5,000 US dollars an ounce as the gold bulls predicted some years ago. But if it does maybe I will have several gold stocks that I have picked up at wholesale prices that investors will gladly purchase at luxury prices somewhere down the road.
As always we’ll see what happens.