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TECHNICAL ANALYSIS


Newmont Mining Looks Attractive

12/03/04 08:49:01 AM
by Kevin Hopson

The recent correction should be viewed as a good buying opportunity, as market sentiment points to higher prices in the long term.

Security:   NEM
Position:   Accumulate

It has been a while since I touched on Newmont Mining Corp. (NEM). The last time I wrote about the stock (late this past summer), I mentioned how prices were bumping up against key resistance at the $42.50 level. This was the site of January's downtrend line, the top blue parallel line, July's high (dotted red line), and the 50% retracement level from the January to May decline. Just to note, January's downtrend line (solid red line) and the top blue parallel line overlap one another, which is why the red downtrend line does not continue. As you can see in the one-year chart, Newmont broke resistance here in mid-August, which spurred a strong rally in the stock.

Since then, Newmont has been moving higher within the rising wedge formation, as illustrated by the green trendlines. Unfortunately, Newmont broke July's uptrend line earlier this week, spurring a sizable correction in the stock. However, given negative market sentiment toward the stock and approaching support levels, I would look to accumulate shares of Newmont Mining in the near term.

Figure 1: Newmont Mining daily chart. The last time Hopson wrote about the stock, prices were bumping up against key resistance at the $42.50 level.
Graphic provided by: StockCharts.com.
 
For example, short interest for the stock was 16.4 million shares as of November 8, which is a 12% increase from the previous month. This equals a short interest ratio of roughly 3.3 times based on the stock's average daily volume over the past three months. In addition, 16 of the 23 analysts covering the company currently have a "hold" or "sell" rating on the stock. If that is not enough of a clue, Newmont's put/call option open interest ratio has been climbing in recent weeks. More specifically, this ratio has gone from 0.66 on November 22 to 0.73 as of today (December 3), which is higher than 79% of the readings over the last year. Rising pessimism is usually a sign that prices have higher to go.

As a result, I would look for a good buying opportunity in the $44.50 to $45.00 range. This is the site of the 1A channel line, which Newmont moved above and then found support along during the late October rally. This is also the site of two key retracement levels -- the 61.8% retracement from the September to November rally and the 38.2% retracement from the June to November rally. Given the confluence of support here, a pullback to this price range would be an ideal entry point for long-term investors.



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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Date: 12/05/04Rank: 3Comment: 
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