12:30 pm 05/10/10:
At BMR we focus primarily on the very speculative junior resource stocks, uncovering home run opportunity gems like Gold Bullion Development (GBB, TSX-V) that have excellent exploration potential and are flying “under the radar”.
Today, however, we’re going to bring to your attention a well known gold producing company that has a very attractive-looking chart – Yamana Gold (YRI, TSX). Yamana is a low-cost intermediate producer and on track to deliver 1.1 million gold equivalent ounces this year (1.5 million by 2012).
It’s clear to us, especially after this morning’s news of the EU-IMF $1 trillion bailout plan for fiscally inept European countries such as Greece, that Gold is on its way to a new all-time high. Concern over sovereign debt issues and the global currency system could easily push Gold to $1,300 or higher in the near future. A money-making company like Yamana with an expected 50% increase in production within the next year-and-a-half is going to perform extremely well in a higher Gold price environment, even if the general stock market runs into trouble (we’re seeing evidence of a de-coupling of the TSX Gold Index from the general market). No doubt there are other producers such as Yamana that should do extremely well but this is definitely a stock worth serious consideration (for what it’s worth, Canaccord has a price target of $17.75). At BMR, we’re fervent believers in the science and value of technical analysis and Yamana’s chart tells us now is the time to get positioned in this stock.
Yamana, which has been trading around the $11 level today, has been fighting a declining 100-day moving average (SMA) since January but it appears that’s about to change. John, BMR’s technical analyst, gives us a more detailed technical overview below:
John: Since the first week of March, Yamana Gold (YRI, TSX) has formed a bullish chart pattern called a “Cup with Handle” and at any time could break out for a significant move up.
Looking at the daily chart, I have drawn in the “cup” in blue lines and the “handle” in sloping black lines. This cup looks very good in that it’s not too deep and it’s “u” shaped. The handle has not declined too far, thus with reasonably high volume it should be able to break up through the top of the cup at $11.45 with a target of $13.50 (top green line) which is also a line of resistance. The target is found by adding the depth of the cup to the level of the top of the cup.
The chart shows good support at the bottom of the cup with a “double bottom” which is a reliable reversal pattern (blue circles).
The handle is a “down sloping flag”, a bullish consolidation pattern, so watch for a move up through the top of the handle as a precursor for the big breakout. The candle at the moment is a doji so there is no pressure up or down.
The 50-day SMA (blue line) is providing strong support for the “handle”, and the 200-day SMA (red line) is at the moment providing resistance at $11.45. Thus a breakout will have both SMA’s supporting the move. Once the breakout occurs, the 200-day SMA will turn from resistance to support.
The RSI is above 50%, thus is bullish and is not threatening to breakdown through the 50% level.
The Full Stochastics – both the %K and the %D are high and are bullish.
The ADX tend indicator has the ADX trend strength line (black) flat and the +DI (green line) is above the -DI (red line) which is a bullish orientation.
Outlook: YRI has declined from a high of $15 in November, 2009, to a recent low of $9.92 and now is poised for a breakout to an initial target of $13.50.