Recap, Entry Point, Price Target, Laggards & Deals

Silver and Gold both retraced as expected which will present us- the smart money, a more secure opportunity to add shares as it is against common trading wisdom to chase a chart higher. The metals, the miners, and the ETF’s all traded lower following the reversal tuesday and while I still have reason to believe that silver will be squeezed upward within the next month, shares should consolidate again if only for a week or so.

The two things I want to point out on this chart are how I’ve been able accurately root out the two previous dips in silver by using the chart, and to predict when it will be safe to buy. I’ve been correct about the last two reversals and the chart provides more than enough data to support that claims I’ve made. Both of the last reversals contained substantial volume, an RSI peak, and a bearish divergence between price activity and either the RSI, or the slow stochastics.

As with the last correction, yesterday I mentioned that the time to buy would be when the %K reaches 25 on the slow stoch. The chart above reinforces my position on that for several reasons. The last three consolidations have not been very deep and all of them bounced off of the 20 Day SMA without dipping much lower beyond that point. We are currently close to testing that average, and not coincidentally, that MA is also right near the short term support level that has been used as both support and resistance in the last month or so. My guess is that we will trade relatively flat in the near term so any break of that moving average should be a strong accumulation signal for those looking to add shares.

Another reason that I believe that the correction will only last a short time is because some of the selling can be attributed to end of the year profit taking, as well as recent COT reports and the CFTC announcing position limits in January. Over the last few weeks the COT (commitment of traders) has shown that the 4 largest commercial holders of short positions have been periodically reducing those shorts. Part of that explains the parabolic run that silver is having and the fact that the CFTC will force those shorts to be covered in the near future means that a massive short squeeze is imminent. I believe that this consolidation will be brief and may serve as the proverbial “cup and handle” for the breakout. I think that spot silver can easily reach $33 by the end of January. There has been high volume on the SLV Jan 11 $35 strike for some time, whoever is betting on that can most likely make money if SLV reaches $32, and judging by the volume (it was over 20,000 calls last I checked) it’s probably a hedge fund that is making that bet.

With all of the excitement and flooding into silver that has transpired, it has been hard to find any deals that remain but there are still some securities that have lagged, and or haven’t quite experienced a pop just yet. Two names that come to mind and are most definitely still undervalued are Sandstorm Resources (SNDXF) and Revett Minerals (RVMID), (formerly RVMIF). Sandstorm Resources is a gold royalty company ($0.72 Pink OTCBB) who have been around for a short time but already have made 5 acquisitions including one recently from Brigus Gold (BRD). Management experience is crucial, when you see names like Goldcorp, Barrick, Silver Wheaton, Newmont etc. on the resume, expectations should be high. Their CEO, Nolan Watson was formerly the CFO of Silver Wheaton Corp, which has in my opinion the best business strategy out of any mining company in the industry. They have and impressive collection of resources and streams, and have lagged the sector which is great for anyone who wants to get in. If you would like a more detailed analysis, visit Hyperinflation’s article on them @ Seeking Alpha.

Moving on to Revett Minerals, the reason for the symbol change as mentioned before is because shortly they will be listed on the AMEX instead of OTC. Revett recently reverse split shares 5:1. Normally this would be bad news for a company but in this case is a huge step as they reverse split to consolidate shares in order to be listed on a major exchange, meanwhile they have no debt, and a strong cash flow. They have not lagged as much as Sandstorm, but it’s only a matter of time before volume surges on this stock. I’d recommend getting in while you can at $4.32. They’ll be pushing $5 and $6 before you know it.

Other producers that haven’t lagged but are still valuable are Endeavour Silver (EXK), First Majestic Silver (FRMSF) and Great Panther Silver (GPRLF). Indeed they have all had big runs, (First Majestic and Great Panther are up something like 100% in the last 3 months) but with the short squeeze in silver approaching, they are still underbought in the long haul. A little tidbit about First Majestic is that while they still listed on the Pink Sheets, their CEO has expressed that his main goal is to be listed on a major American exchange. Judging by the flood into FRMSF, I’d say that his goal is reachable in the not too distant future. This company could easily be pushing $20 by 3rd quarter next year.

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

One Response to Recap, Entry Point, Price Target, Laggards & Deals

  1. Pingback: ISM-USAlInternational Sports Management

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