Bullish Divergences For Newmont Mining Corp.

02/09/04 08:23:02 AM

by Kevin Hopson

Newmont Mining Corp. (NEM) has pulled back roughly 20 percent over the past month but there are signs of the short-term downtrend reversing.

Security: NEM
Position: Hold

Newmont Mining Corp. has seen significant gains over the past year, as the stock has more than doubled since March '03. As a result, the recent pullback in the stock price - though sizeable - should not come as a surprise to most investors. After topping out around the $50.00 level early this year, Newmont has proceeded to pull back to the low $40s. So what now? Should investors stay on the sidelines, go long at current levels, or sell into strength?

Though the charts fail to offer a definitive conclusion, they provide some much needed insight on the situation. For example, looking at the one-year chart for Newmont, you will notice that the relative strength Index (RSI) has been moving sideways the last few weeks, while the moving average convergence/divergence (MACD) has been moving higher. This has occurred in light of lower prices, an indication that a bullish divergence has formed. Bullish divergences usually signal a forthcoming bottom reversal.

Figure 1: One-year chart of Newmont.

Graphic provided by: Stockcharts.com.

However, Newmont will have to hold support in the $40.00 to $40.50 range to avoid a further sell-off in the near-term. As you can see in the one-year chart, the 38.2 percent retracement level from the March '03 to Jan. '04 rally comes in at $40.33, and last August's uptrend line comes into play around the $40.00 level. Switching to the seven-day chart, notice that the stock has bounced off the $40.50 level for several days in a row. As a result, I consider the $40.00 to $40.50 range a key support area for the stock.

Figure 2: Seven-day chart of Newmont.

Additionally, Newmont has continued to find short-term resistance around the $42.70 level. This is the site of the 61.8 percent retracement level ($42.66) from the Jan. 28 high to the Jan. 29 low. Since 61.8 percent retracement levels often act as ultimate reversal points, a break of resistance here (say a move to $42.80) would turn the near-term technicals bullish. So, the stock could test the Jan. 28 high around $44.00.

In summary, if Newmont can hold support in the $40.00 to $40.50 range and overcome resistance at $42.70, a short-term bottom will likely be confirmed. Otherwise, a move below the $40.00 level could spur additional selling pressure in the near-term.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.

	Glen Allen, VA
E-mail address:	hopson_1@yahoo.com

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Bullish Divergences For Newmont Mining Corp.

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