April 26, 2008 – Keep the Faith?

by JDH on April 26, 2008

Well gang, that was a brutal week.

Last week I was down down 7.4% on the year; as of today I’m down 15.3% on the year, so it was a very bad week.

Sadly, it was the blue chips that killed me.

K.TO – Kinross Gold Corp. was down 17% on the week, AEM.TO – Agnico-Eagle Mines Ltd. lost 12.8% and G.TO – Goldcorp Inc. was down 10.4% on the week.

How bad is it?

kinross gold

Well, as you can see from this Kinross chart, the uptrend line dating back to the September lows has been broken, but the uptrend going back to the August lows is still intact, which means we could still see a drop into the $16 per share level. On the other hand, an RSI at 33.89 is about as low as it goes for this stock, and the two previous times in the past year the RSI has been in the 30 range marked important bottoms, including the one on August 16, 2007.

I won’t bore you with the other gold charts, since they all look similarly brutal. I will however show you the gold chart:


Have we reached a bottom at $880? Or will we fall down to the 200 Day Moving Average around $818, which was the springboard for the last major up move?

I have no idea. On March 1 I said “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.” I expected a dip, and I suppose if $880 is the bottom my guess will fairly accurate. Unfortunately I didn’t sell everything on March 1 to play the dip, so close only counts in horseshoes and hand grenades, as they say.

Since I’m stubborn, probably stupidly so, I’m not giving up on the golds yet. The gold market is the most manipulated market in the world, and I have no doubt that the manipulators will start driving it back up at some point soon. I plan to see if the $880 level holds this week; if not, we are probably looking at the $825 level as support, so it may be time to lighten up.

The economy is still in the tank, and America is still being crushed under the weight of silly regulations. (It has nothing directly to do with the stock market, but check out this great piece by Peggy Noonan in the Wall Street Journal as an example of what the U.S. government is doing to crush the spirit of it’s citizens. I’m a Canadian, so I’m not making a political statement here; I’m merely an observer on this one). That all bodes well for gold.

For the second week in a row, my biggest winner this week was UUU.TO – Uranium One, Inc., up 6% this week, after a gain of 14% last week, as it bounces off the bottom. It’s still in an obvious down trend, but when a stock gets completely oversold it’s quite easy for it to rebound by 20% in two weeks, so again I see no point in giving up at the bottom.

I did liquidate some of my junior uranium losers this week, and I am now sitting on 20% cash. Last week I said my plan was to liquidate losers and place below market stink bids on stocks I wanted to own. My stink bids got filed on a few juniors this week, and I plan to continue to deploy the cash with more stink bids this week.

However, I won’t be chasing any stock. I’ll pick up the bargains, with a view to selling when the market bounces back, either in the coming weeks, or the coming months, as it inevitably will.

Help me alleviate my confusion by posting your comments on the Buy High Sell Higher Forum; see you next week.

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