TDEN

Archive for the ‘Stock Recommendations’ Category

While BP and Transocean are tied up trying to clean up the Gulf mess, stocks in the entire sector were dragged down on the news. This presents a buying opportunity in the right companies.

Another possible way to play this is to buy the NE June 41 calls for around $1.50. Your break even point is the stock hitting $42.50 before expiration. If NE hits $44. your options will be worth $3.00 and you will have doubled your money. You would probably want to sell your calls at a loss in order to preserve capital if the stock hits $37.70.

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TBT is an etf that double shorts the 20+ year treasury index. TBT has just broken out to the upside of a downtrend channel that has been forming since May, 2009. Since TBT has been in an overal uptrend since Dec. 2008 this channel is basically an extended bull flag. With the U.S. dollar being devalued by Uncle Sam, treasury interest rates should rise while principal value falls. TBT looks poised to test its previous high of $60.00 that was reached in June, 2009. From its current price of $47.43 this represents about a 30% gain. Options on TBT are reasonably priced but I would not buy any that expire earlier than March 2010.

The U.S. Stock Market as represented by the S&P 500 is again in a bull flag formation indicating higher prices to come. Since July the S&P has been rising in steps: it moves up and then flags, moves up and then flags. This is a highly bullish buying pattern and indicates a market that has been rising in an orderly, sustainable fashion. The S&P is nearing the top of the major bear market downtrend line that now sits at about 1120. In order for the bear market to be over the S&P will either have to break through 1120 and sit above it for at least 6 weeks or make a giant run through 1120 leaving it in the distant past. Based upon the recent price action in Amazon.com and Apple it appears that the U.S. consumer is far from dead. 700 people lined up in advance to enter the new Microsoft store in Nevada. While I can’t figure out why anybody in their right mind would line up to buy yet another operating system that probably has as many security holes as a pound of swiss cheese, this is yet a further indication that Americans love to spend money. It appears that the worldwide economic recovery may turn out to be much stronger than many economists anticipated thereby justifying higher stock prices and an end to the bear market.

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Barrick Gold is the worlds largest gold company. They have just unwound their gold hedges and are expanding their operations worldwide. With the price of Gold hitting new highs it pays to look at the 800 pound gorilla in the room. Here is a 10 year chart of ABX. It looks like a large kite with a tail. ABX uptrended slowly until the middle of 2007 when it took off and ran to a new high of $54.74. It then quickly sold off to a low of $17.27 and has steadily moved up to its current price of $40.12. Since mid 2007 ABX has been trading in a gigantic diamond formation with the lower half almost a mirror image of the upper half. The low to high price of this pattern is $54.74 – $17.27 = $37.47. If we multiply $37.47 by 2 we obtain a price target of $74.94. Since gold miners have been lagging the price of gold they have plenty of room to catch up especially with the price of gold rising. A doubling of ABX in price from current levels does not seem unreasonable.

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Here is a 2 year chart of GDX the etf that tracks gold mining stocks. You will notice that it is almost identical to that of SLV as described in the post below. Since the March top of 2008 GDX has been trading in right triangle and rectangular patterns. It has broken through the hypotenuse of the major right triangle price formation and is in an intermediary uptrend channel. Volume has increased substantially on this ETF and momentum is turning positive on the macd at a high level. It looks like GDX is about to break out of its trend channel and eventually move to new highs. The projected price target of $73. is computed by subtracting $16.33 (the Oct. 2008 low) from the price that is equal to the shortest distance to the hypotenuse and then adding the result to that price. I have marked that distance with a line. That calculates to $45.00 – $16.33 = $28.67. $45.00 + $28.67 = $73.67. If this price calculation works out that equates to approximately a 50% return on GDX from it’s current price of $48.29. It took about 1.5 years for this chart pattern to form. I anticipate the move up to be significantly quicker.

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Here is a 2 year chart of SLV the etf that tracks silver. You will notice that since the March top of 2008 SLV has been trading in right triangle and rectangular patterns. It has broken through the hypotenuse of the major right triangle price formation and is in an intermediary uptrend channel that is now challenging the longer term uptrend channel from the Oct. 2008 lows. The last time SLV hit the top of this channel it pulled back only to the mid-point. In the meantime the macd and momentum appear to be turning positive at this critical juncture and volume appears to be picking up. It looks like SLV is about to break out of its trend channel and eventually move to new highs. The projected price target of $25. is computed by subtracting $8.76 (the Oct. 2008 low) from the price that is equal to the shortest distance to the hypotenuse and then adding the result to that price. I have marked that distance with a line. That calculates to $17.00 – $8.76 = $8.24. $17.00 + $8.24 = $25.24. If this price calculation works out that equates to approximately a 43% return on SLV from it’s current price of $17.44. It took about 1.5 years for this chart pattern to form. I anticipate the move up to be significantly quicker.

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GDX has corrected to its 200 day moving average which coincides with its uptrend line. The current price of 35.74 looks like a good buy. The initial short term target of this trade is about $47.00 but longer term it should trade much higher as gold keeps moving up in price.

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SLV’s 50 day moving average has crossed above it’s 200 day moving average and the downtrend from the July, 2008 top has been broken. An ideal entry point would be about $13. per share but I wouldn’t hesitate to start buying now. SLV is trying to break through an intermediary double top at around $14. per share. If it breaks through it looks like it can make a run to its old highs of about $20. per share. There are Jan. 2010 $13. leaps available that have very little premium attached so I would consider buying them.

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If you purchased FXI at or near the recommended price of $27.00 I suggest you take some profits into this rally. It has risen 30% in a short time. You may wish to sell half and hold the rest for longer term gains. Options traders should adjust their positions accordingly. Only very long term committed traders should hold their entire position.

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It looks like the bull market in gold is just getting started. The 50 day ma crossed upward over the 200 day ma signaling a bull market. Buy GLD. Leaps going out to Jan 2011 are available but premiums are high due to the volatility in gold so invest accordingly. Another possibility would be to buy DGP a gold double long etf. GLD is currently trading for around $90. per share.

UPDATE 6/5/09: GLD has formed 2 extremely bullish chart patterns. It has formed a massive inverse head and shoulders pattern that spans from March, 2008 until now and it has formed a cup and handle that spans from Feb, 2009 until now. It looks like gold is getting ready to bust through the $1,000. per ounce mark. The projected price target in the next leg up for GLD is $130. per share. Now is the time to add to your positions.

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FXI looks like a good buy at these levels. FXI appears to be breaking out to the upside from the downtrend started in Oct. 2007. The technicals and fundamentals for China look good at this point. China has cash in the bank, no debt, an intact banking system and an annual growth rate of 6-8%. FXI could trade short term to 35 and longer term make a run for its old highs in the 70′s. Leap’s going out to Jan 2011 are available and the premiums look reasonable. FXI is currently trading at around $27. per share.

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