After surging to a new all-time high of $1,258.58 an ounce on
Friday, the yellow metal certainly could come under pressure from
profit-taking or some other yet unknown exogenous event. However,
for lots and lots of reasons, I like gold in this market.
- To begin with, my time-cycle forecasts for gold show a
potentially very positive trend higher for the next 90 days (and
possibly beyond). In the chart below, you see a small, reddish
colored "wedge." This is what I refer to as a "time-cycle
inversion incidence wedge." This indicates there is likely to be
some downward pressure on gold for the next few days, as
SPDR Gold Shares (NYSE:
exchange-traded fund (
that replicates the performance of the price of gold
- Unlike other basic material commodities, it appears that gold
is now being driven higher as a
against the risk of falling currencies (particularly the euro in
the near-term and the U.S. dollar in the longer-term).
- I believe the risk of a double-dip recession in the United
States is growing stronger. Many investors turn to gold in times
of economic uncertainty, which could put upward pressure on
- Likewise, gold could be the beneficiary of ongoing (and
possibly growing) fears about the shaky financial situation in
Note: A time-cycle inversion occurs when the time-cycle
forecast is predicting that the market will move one direction when
the market actually moves in the opposite direction. The vast
majority of the time, inversions are very short lived, lasting from
a few days to a few weeks. There are two types of inversions:
bull-bias and bear-bias.
Bear-bias inversion: Just the opposite of a bull-bias
inversion, this is a situation where the market wants to move
lower, but due to some artificial stimulus, the market moves in the
opposite direction. In bear-bias inversions, the time-cycle
analysis is telling us that the market "wants" to move lower and
follow the bottom edge of the red shaded area, but is acting in a
way by moving higher and following the upper edge of the red shaded
Bear-bias inversions are often good times to play the role of a
contrarian, where you would sell into rallies and consider taking
short positions if the bottom edge of the shaded area is trending
lower for an extended period of time.
If there are no shaded areas on the chart, it means the market
is behaving exactly as the time-cycle analysis has forecast that it
would behave. If there is a shaded area, it means that the market
is behaving exactly the opposite of the forecast of the time-cycle
analysis; this puts more risk in assuming that the market is going
to continue to move in a direction that is opposite to the forecast
based on the historical time-cycle analysis (hence the "Warning"
message at the bottom of the charts).
My pick this week is, as you might imagine, is a gold-related
Yamana Gold, Inc. (NYSE:
, a Toronto, Canada-based gold miner with a
of nearly $8.2 billion.
The fundamentals for Yamana are fair, but I suspect earnings for
the three months ending June 30 will come in strong when the
quarterly report is released next month. The key factors include
- The growth rate for total sales for the most recent quarter
versus the same quarter a year earlier comes in at +62.1%. This
compares to its industry growth rate of +17.3%. The S&P 500
average growth rate for the same period was +13.5%.
- The growth rate for total sales for the trailing twelve
months versus the trailing twelve months of a year earlier was
+63.1%, compared with the industry average growth rate of +60.2%
and the S&P 500 average growth rate of +6.9%.
My technical assessment of AUY includes the following:
- AUY trades in the top of Zone 2 (see grey area in the above
chart) and as long as the broader market does not trend
appreciably lower, AUY could be buoyed by the rising price of
- Average daily volume has been increasing in recent weeks on
increasing share price. This could be a sign that momentum is
building in this stock.
is at 48% -- an indication that the larger institutions have a
positive outlook on the stock.
Action to Take -->
Based on the analysis above, I believe AUY is a good trade to put
on now with the following trading parameters:
- Buy shares of AUY under $10.89
- Set an initial stop loss at $10.01
- Target price = $15.00
Potential Profit =
Editor: Mastering the Markets, Trade of the Week
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Disclosure: Mike Turner does not own shares of any security
mentioned in this article.