This Week’s Commentary – March 1, 2008 – Puns, Dines, Merv, Gold and Uranium

by JDH on March 1, 2008

Yet another good week, with some hiccups along the way. Last week I ended the week down 5.8% on the year. This week I ended down 2.5% on the year, so I am gradually crawling back to break even. I still hold 43% of my portfolio in cash. I did some buying this week, but I also did some selling. And, there were some that got away.

My only purchase this week was K.TO – Kinross Gold Corp. I’ve been trying to also buy AEM.TO – Agnico-Eagle Mines Ltd. and G.TO – Goldcorp Inc., but my below market bids didn’t get filled this week, except for Kinross (obviously my bid price was not that much below the market).

I have a feeling that in the very short term the gold market is getting toppy, so I immediately covered some of the Kinross shares that I bought. On Thursday I paid $24.09 for Kinross, and on Friday I sold the March 24 calls for $1.20. (They expire on March 22, 2008, and I covered 1,500 shares).

If I’m wrong and Kinross goes on a big run, my shares will get called, and I will get to keep the $1,771.26 I took in on the covered write (net of commissions), so my profit on the transaction will be will be about 4.9%. That’s fine for 22 days of work.

If as I expect there is a slight correction in gold, I’ll buy back the calls for less than I paid for them, thereby mitigating my losses. Kinross and my other gold holdings are long term holds, since I expect to see $1,000 gold sometime in March or April, so either way I’m “covered”. (Note: more puns to follow).

Why do I think gold is due to pause? See for yourself:

gold chart

First, the RSI is at 73.19, and anything over 70 is generally the start of a consolidation. Obviously the price could run for a few more days or even weeks, but inevitably it needs to take a break. (The vertical red lines show the previous times the RSI was over 70).

Second, the price is now significantly above the 50 day moving average. I drew a green vertical line from Friday’s closing price down to the 50 day moving average, and then copied that line to the two previous tops. At the end of January the price went even higher before correcting; earlier in January the price was about as far over the line as it is now, and then started to drop.

I would therefore not be at all surprised to see significant resistance at the $1,000 level, and it would not surprise me to see gold pull back to the 50 day moving average around $900, like it did around Christmas 2007.

Of course this is just a temporary pause in what is a bull market, so if we have a few down days I will be deploying the rest of my cash in gold and silver shares. But, I’m not going to chase it; patience is a virtue.


Discipline is also a virtue, as I noted in my Discipline Commentary back on January 12, 2008. Quoting my Rules page, I said that if a stock falls 20%, I sell it, which is exactly what I did a few weeks back with HAT.V – Hathor Exploration Limited:

hathor exploration

Obviously this was one I missed, as good drilling results drove it higher. However, looking at the chart action leading up to this week, I can’t fault myself for selling a stock that was in an obvious downtrend.

Excuse another pun, but hat’s off to trucker over on the Buy High Sell Higher Forum who grabbed the bounce for a big profit in four weeks. My view of the chart looked dismal when I sold it and I don’t suffer from seller’s remorse. The chart looked ugly, so I sold and redeployed the cash elsewhere, and since I had a good up week, I’m not going to lose any sleep over it.


I have been keeping an eye on Technically Uranium With Merv, a blog, run by Merv, that contains daily technical commentary on the uranium market. Merv maintains his own uranium share index, and publishes a daily commentary on market action. I like his unbiased approach, and I’ve added a link to his site in the links section on the right hand navigation menu on this site. Short term he’s bullish, and intermediate term he’s neutral, and I agree; I think we have had a good run in the last two weeks, and a pause, like I expect to see in gold, would not shock me. However, I think March and April will be good months.

Prudence however dictates that profits must be taken occasionally, and that’s what I did on Thursday with DML.TO – Denison Mines Corp.:

denison mines corp

Last week I published a Denison chart, and said the following:

I put in an order and got filled on Tuesday at $6.93, so obviously I’m happy today. I like the chart because:

  • the downtrend going back to November has been broken (although the longer term downtrend remains intact);
  • the close at $7.70 means we have crossed over the 50 day moving average (currently at $7.75) which is usually a great buy point; and
  • the downtrend in the RSI has also been reversed and is moving in the right direction (although now we run the risk of the RSI getting toppy).

My plan is to put in a sell order around the $10.50 level, since I assume we will hit some resistance just over $11. That would give a nice profit, and would allow me then to repurchase on dips. If it doesn’t get to $10.50, that’s fine, I’m content to sit and wait.

Well, sort of. I sold most of my shares on Thursday at $9.17, which was not exactly $10.50, but it’s hard not to jump at a profit of over 30% in less than two weeks. On Monday I will put in a buy order at $8 in the hopes of getting back in at a lower price for the expected run into the $10+ dollar range.

Other recent purchases, like my purchase of RH.V – Red Hill Energy, Inc. (you can read my detailed comments on the Red Hill Energy blog post) have not yet turned significantly up, but everything doesn’t go up in two weeks (see Hathor), so I’ll be patient.

In short, I expect to see some choppiness over the next week or two, but once the Fed lowers interest rates later in March, gold should take off, and I hope to be well positioned when that happens.

The Dines Letter

Finally, I would be remiss if I did not comment on the latest issue of The Dines Letter that was issued yesterday. Many of you have already commented on the The Dines Letter over on the Forum, and I agree with your comments. Most fascinating was his sell signal on UUU.TO – Uranium One, Inc., a stock that I sold quite a while ago, because it doesn’t take a genius to read this chart:

uranium one

When a stock falls from $18 to $5 it’s in a downtrend, so you sell. Duh. There’s a good article about Uranium One over on Moneyweb; they offer the kind of analysis that we don’t get from Dines.

I do however agree with the comments over on the Forum that a stink bid contest is now in order. Uranium One is a producer, and does have assets, and some cash. The directors did start buying small quantities of shares this week. So where to place the stink bid? I’m in at $4 on a big drop on Monday. If I don’t get filled, fine. If I do get filled, I’m paying the price from back in April, 2006, which seems reasonable to me. ( I guess if I’m going to be silly and throw money around, I should just buy the options, but I digress).

The rest of Dines Letter is more back patting.

I start every one of my weekly commentaries by telling you my performance. I’m down so far this year. I don’t hide that fact. I disclose it. Dines, not so much. I do love some of his quote, such as this one on page 3:

We flashed our silver “Buy” signal at $4.55 on 25 Sep 01, and now that it is roaring toward $20, we feel more confident about reiterating our prediction of a challenge of it’s all-time high at $50.

Unfortunately a prediction that takes seven or eight years to come true isn’t much of a prediction, particularly if you had your money locked up earning nothing waiting for it to happen.

Oh well, I still love The Simpsons, and I still read Dines, but I do my own thinking.

That’s enough for today. Thanks for reading. Please enter the Stink Bid Contest on the Uranium One Board, and please continue to post your thoughts on the Buy High Sell Higher Forum.

{ 0 comments… add one now }