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Gold and Silver Penny StocksDr Clive
Roffey I believe that trading volume is the most important aspect of trading any penny stock. Not only good trading volume to get in and out is required but a consistent level of volume should also be visible. I am well aware that volume varies with the condition of the market. In a bull market volumes naturally increase as buyers look for value and media hype sucks in the crowd. But in a bear trend volume usually contracts considerably as buyers retreat to the sidelines. It is no good having a stock that trades in several hundred thousand in a bull trend but dries up to a couple of thousand in a quiet period or bear market. I have received so many emails from investors who bought penny stocks for the bull run and did not sell. They remain holding the stock and cannot exit as they watch prices fall. The old adage of "a profit, is a profit, is a profit" applies dramatically to penny stocks. Trading penny stocks demands a much more stringent exit policy than trading larger capital stocks where one can exit at any time. I do not regard penny stocks as an investment. I regard them as highly leveraged runners in a bull market, and that is all! I have been inundated with propositions for the inclusion of penny gold stocks with supposedly great fundamentals, according to the protagonists they are dead cert buys. The proposed fundamentals may be good, or they may be a mirage. In South Africa we have a popular penny stock called Af. Lease, it is quoted in the US (AFKDF). For years the management issued expansive prophecies of gold mining profits but never delivered. This became so bad that eventually they announced that due to the falling gold price the plant was to be mothballed. During the past year the old guard has been forced out and the management has been radically changed. For the first time it looks as though expectations could well be met. But mining penny stocks have a long history of promises, promises with little delivery. The stock prices move more on expectations than actual results. The above discussion details the biggest problem in analyzing mining penny stocks. Who do you believe? We do not concern ourselves with the fundamentals but focus on the technicals. In the last issue I detailed that penny stocks have a penchant for forming very clear trading patterns, trends and support and resistance levels. But all of this is useless unless one can buy and sell the share at will, hence my requirement for a consistent level of reasonable volume. I came across some interesting data the other day. Sixteen new gold mining companies have applied for a listing on the Shanghai exchange in China. China is now the fourth largest producer of gold, mining some 200 tons annually and increasing at the rate of 25% per annum. At this point of time Sino Gold, quoted on the Australian Stock Exchange (AU:SGX), is the only quoted stock with a solid interest in China. We will be keeping a very close eye on this potentially interesting situation. I have been asked to construct a model portfolio. So I am starting with $100,000. On this amount I will look for at least ten penny stocks to achieve a decent spread. For all the doomsday forecasters who still send me hate mails I am putting $10,000 into DURBAN DEEP as my first buy!!! The rest are analysed as follows.
Let's start with the $ gold price. Numerous analysts are calling for a drop in the gold price back to the $350 level. I have detailed consistently in 'Gold Action' that I did not subscribe to that analysis and that I expected an upside move to around $490 as the next phase, not a drop to $350. The gold price has been trading in a triangular formation for the past five months and any move back above $415 will trigger a catapult to well above the long term resistance at $430.
The price of Gold in Yen may seem to be a crazy way of assessing gold's potential. But the chart is extremely interesting. There is a huge flat top triangle that has formed over the past two years. A break above the Y45000 level will trigger an upside surge in this chart. The implication is that gold will outperform both the US$ and Yen, irrespective of the relative performance between these two currencies.
For South African
penny stocks the Rand price of gold is far and away the
most important data. The recent dip has formed the right shoulder
of a reverse head and shoulders pattern. This is extremely bullish.
A move above the neckline would push the price to R3200 an ounce.
This translates to over R100 000 a kilo. Even Durban Deep at
its current group break even of R86 000 a kilo will make a substantial
profit. This will leverage the South Africans dramatically. This
is why DROUF is my first penny stock selection. For FREE trial
data contact :- Dr. Clive Roffey at info@utm.co.za |
