All That Glitters

12/01/05 08:42:34 AM

by Koos van der Merwe

With gold moving above $500 per ounce for a brief intraday moment, gold bugs became excited, but on November 11, in a Traders.com article on gold, I wrote...

Security: MMM-T
Position: Buy

To conclude, although the monthly chart has broken above a major resistance level, its indicator is suggesting that the major trend is down. However, a divergence could once again occur with the gold price making new highs, while the RSI [relative strength index] shows lower highs. The weekly chart, on the hand, is suggesting that the medium-term trend is down, possibly to the $390 to $400 level, a sizable drop from the current price. Finally, the daily chart also suggests weakness, but not to the levels suggested ... . There is support at $454 and at $433, should the $454 support be breached.

... And I was right with the first paragraph and wrong with the second. My charts suggested one thing, and very soon proved that all that glitters truly can be gold. With gold at these levels, many of the smaller mining exploration companies are finding it profitable to continue drilling their holes of hope.

One company that captured my attention because of its chart is Minco Mining and Metals. Minco is a Canadian mining company involved in the direct acquisition and development of high-grade gold, silver, and base metals properties in China. Since 1994, Minco has evaluated more than 400 properties in China from which it has acquired an outstanding portfolio of high-quality advanced and exploration stage properties. Okay, so we all know that China is growing voraciously and that mining companies are exploring the country for minerals with a fine-tooth comb, but find the company that offers more than a suitcase of rocks and a drill hole of hope can be a challenge. Minco is one company that may meet that challenge.

FIGURE 1: MINCO MINING. Is this stock truly glittering?

Graphic provided by: AdvancedGET.

Figure 1 is a daily chart of Minco and shows how the price broke above the resistance line on a gap and after tracing a flag pattern on July 7, 2005. The target from this pattern is $1.24 and is calculated as follows. The pole into the flag is $1.20 - $0.98 = $0.22 + $1.02 (the low point of the flag) = $1.24.

The price rose to $1.33 before correcting into a consolidation triangle. This in turn gave a target that is calculated as follows. The pole into the triangle was $1.02 to $1.33 = $0.31 added to the low of the triangle, $1.11 = $1.42. The price made its first correction at $1.40. It corrected to $1.25 and then moved up strongly to $1.68 before falling to form what looks like another consolidation triangle. This now gives a target of $1.98 ( $1.68 - $1.25 = $0.43 + $1.55 = $1.98). There is a resistance at $1.90, the pivot point of December 16, 2004, and we could well see some selling again this year at this level of profit-taking. The moving average convergence/divergence (MACD) is also suggesting that a buy signal may be in the wings.

Finally, I have suggested a possible wave count that looks reasonably feasible. The v-3 count could be wrong. Here I have shown wave v as a failure -- that is, where it has not risen enough above the top of wave iii, at least equal to the length of wave i. If it is incorrect, then it would mean far greater upside than the target I have shown.

This is very much a stock worth watching and investing in if you are a gold bug.

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.