Traders Bypassing Fundamentals, Update on Capital Gold Corp

Today intraday traders have ignored any fundamental analysis of equities and instead have been eyeing the dollar index like a hawk. You get the feeling that this is going to be the norm and it is clear that equities are held up by a thread. That thread happens to be the falling dollar.

I’m still targeting the dollar’s next stop for the 77.50 area but perhaps what is more interesting is the strict relationship between the S&P, gold, the dollar, has gotten even tighter in the last week or so and was especially evident today.

Another thing I’d like to discuss is the recent M&A news from Capital Gold (CGC). As some of you know I posted news on monday regarding the attempted Timmins Gold buyout offer of $4.50 per share that CGC rejected. Since then the stock has been up 25%.

One thing I’d like to point out is there have been two notable profit taking instances since then yet the stock has still retained its value and finished higher both days (if only marginally higher today). As you can see on the chart above both large selling points appear to be market orders that immediately created a temporary selling rush. Yesterday, despite a sharp .24 decline CGC closed up about 10% and today it closed fractionally higher despite a late dollar rally, a .14 selloff, and gold being off of its highs of the day.

I think that this is a fundamentally bullish indicator because it means that buying interest is not dead and confidence that the buyout rejection was a good decision is high. I think that CGC is still a buy because Timmins has not yet made another offer, and neither has any competitor. However, if a large cap gold company like Barrick or GoldCorp puts in a bid, things could get very interesting and regardless, as gold prices rise, so will CGC’s value.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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