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CUP WITH HANDLE


Dundee Precious Metals And A Play In Gold

03/18/05 10:07:47 AM
by Koos van der Merwe

The price of gold has become a US dollar play, and with the US dollar expected to drop a further 16%, gold should rise. Here's a stock worth looking at.

Security:   DPM-T
Position:   Accumulate

Dundee Precious Metals is engaged in the acquisition, exploration, development, and mining of precious metals. It currently owns the Chelopech Mine, a producing gold and copper mine, and Ada Tepe, a gold exploration propert, both located in Bulgaria.

What I like about Dundee is Ned Goodman's shadow in the wings. Ned Goodman founded Dynamic Mutual Funds in Canada, and is well known as a cautious investor. His son Jonathan is president and chief executive officer of Dundee Precious Metals, and has been well trained over the years to follow in his father's cautious footsteps.

Figure 1: Dundee Precious Metals. A large cup and handle formation with a break above the handle at $8.72 suggests a target of $10.31.
 
A look at Figure 1 shows the following:

-A large cup and handle formation with a break above the handle at $8.72 suggests a target of $10.31.
-A JM buy signal given on February 4 and that is still in force. The JM internal band is a 15-period simple moving average offset by 2% positive and 2% negative.
-An 8,10,5 stochastic oscillator that is overbought but has not given a sell signal.
-The average directional movement index (ADX) line (maroon) in the ADX/DMI indicator is turning down, suggesting a weakness in the future.
-The two DMI lines of the ADX/DMI indicator are converging. This does suggest weakness.


Conclusion
The stock is a good one to own if you believe that the gold price will strengthen. You can either wait for the price to cross above the $8.72, the upper lip of the handle, or you can wait until:

a. The ADX line starts turning up.
b. The two DMI lines cross and recross each other with the blue DMI line (+-DMI ) breaking above the red DMI line (-DMI). This indicator is usually late but cautious.
c. Wait for the price to test the lower JM band. If it breaks below the lower band, then wait for it to move upward breaking above the upper band before buying.

Finally, note that as the price fell, volume weakened, suggesting that sellers dried up. This is very bullish.





Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address: petroosp@gmail.com

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