NEW YORK -- With gold nearing $520 an ounce, and shares of the better known mining companies starting to take off, Resource Investor turned to renowned chartist Rick Ackerman to get the technical perspective on the sector.
Ackerman, who worked as a market maker on the Pacific Coast Stock Exchange for 12 years, has been using his unique “hidden pivots” system since the mid-1990s. Today, he is a full-time trader and the owner/operator of Rick’s Picks, a technical-oriented daily investment newsletter.
RESOURCE INVESTOR: Before we get into your specific thoughts on the precious metals sector, maybe you can give our readers a little more background on your system.
RICK ACKERMAN: I use a simple ABCD pattern to forecast swing points, both the important ones and the minor ones. Action at the minor swing points tells me how strong the underlying trend is. Typically, when a hidden pivot target is exceeded, it implies the next will be reached. I generally like to buy against the trend, but against the minor trend. This allows me to catch tradable reversals from the very first tick, using extremely tight stop-losses.
RESOURCE INVESTOR: How did you develop this system?
RICK ACKERMAN: I learned it from a friend who was a market maker with me on the Pacific Stock Exchange. The rudiments come from a system marketed by Larry Williams in the early 1970s that was designed by Charles Lindsay. It’s officially known as Lindsay’s Trident. It’s been modified considerably by discarding Lindsay’s core principal, which detects only one trading point along the length of the ABCD pattern. My method identifies nearly a dozen additional “hidden pivots.”
RESOURCE INVESTOR: What are your overall thoughts on the gold market – can we expect to see the bullish trend continue?
RICK ACKERMAN: I’ve been bullish on gold for quite a while trying to avoid the pie-in-the-sky targets that others like to hype. Recently, the most important number for me was $509.25, equal to a somewhat obscure peak recorded years ago. From an empirical perspective, I needed a print above $509.25 to officially end the bear market.
RESOURCE INVESTOR: So we can finally declare the long bear market in gold as officially dead?
RICK ACKERMAN: Yes. There was also a cluster of hidden pivots between $505 and $510, and the fact that gold recently was able to exceed all of them without a pause made me very bullish for the near term. When February Gold exceeded $509.25 it announced that it was going to at least $533.60. I expect resistance at that price. If it is fleeting, that would strongly imply the rally will continue to at least $553.30.
RESOURCE INVESTOR: In the longer term do you have targets for gold, or are these contingent on how things play out in the short term?
RICK ACKERMAN: I like to take things one step at a time, and I’m always entertained and amused by those who fantasize about $5,000 an ounce or $10,000 an ounce. While that’s possible, there’s no practical value to me in using those numbers. I expect a retracement at $553.30, but if it blows past that number it would signal a new impulse leg. And if the February contract exceeds $564.40, an important peak made in the summer of 1993 on the way down, then any pullback would be a terrific buying opportunity.
RESOURCE INVESTOR: You seem to be pretty convinced that we’re in a bull market for gold – when gold does retrace, at what point should we really start to worry?
RICK ACKERMAN: My rule is that, every time a trend leg surpasses two prior highs or lows, it refreshes the trend. To signal a bearish trend-change on the long-term charts, gold would have to drop below $396.20In other words gold could come fall by $125 without doing any damage to the larger bullish picture. Once gold is above the $564.40 peak I mentioned earlier, nothing is going to derail the bull market. At the rate gold is going, this threshold could be reached as early as February or March. To get away from the technicals for a moment, one factor that is becoming increasingly important is the recycling of petrodollars into gold. It’s given the bull market far more energy than mere buying by gold bugs and long-term bulls could have.
RESOURCE INVESTOR: In your view, what are most attractive stocks in the mining sector?
RICK ACKERMAN: The oil sheiks don’t really care about South African miners and small exploration companies, so I would expect their shares to continue to lag the rise in physical metal. For sure, small-cap mining companies are going to have their day – but it is still years down the road, when cover stories about gold start appearing in Fortune, Business Week and Forbes.
RESOURCE INVESTOR: That being said, there are certainly companies that have fared well since 2001 – and especially since the recent low last May. Which are best positioned technically from this bunch?
RICK ACKERMAN: With gold above $500, institutional investors are growing antsy about being underweighted in precious metals. They’re going to start piling into large-cap miners, and that’s why I like biggies like Newmont [NYSE:NEM] and Gold Fields Ltd. [NYSE;GFI]. Such stocks are likely to outperform the juniors until gold-mania erupts a few years down the road. Newmont is currently at $49.64, but I think the stock’s a lead-pipe cinch to reach $60.75, equal to a very important peak recorded almost 10 years ago. That coincides with one of my very important hidden pivot targets at $60.90. At a minimum, though, Newmont’s going to gain 20% over the next couple of months.
RESOURCE INVESTOR: What’s the best way to play this potential gain – buying the stock or going for some leverage with options?
RICK ACKERMAN: Buy the stock, since the stock could surge at any time with little warning. But if you’re looking for a less risky way to play it, try buying March 60 calls for around 85 cents. Later, when the stock has moved toward the target, you can try to short either January or February calls for as much as you’ve paid for the Marches. In other words, you’re trying to leg into a calendar spread at no cost. If everything goes right, the stock will be trading near $60 come March, and the calls you’ve shorted will have expired worthless, allowing you to hold the March 60s free and clear. This is a somewhat speculative strategy for me, because I normally like to buy the pullbacks. But if you want to get in right now, that’s a good way to do it.
RESOURCE INVESTOR: What about some of smaller miners and non-senior producers? Which charts look good there?
RICK ACKERMAN: I like Novagold [AMEX:NG; TSX:NG] and Goldcorp [NYSE:GG; TSX:G]. Recently, Goldcorp has been the stronger of the two, but its high not long ago at 21.85 came close to a hidden-pivot target at $22.21, so the stock is probably due for a pullback. If you want to buy Goldcorp at these levels, then, you should use a trailing stop that’s based on a $22.21 target.
As for Novagold, in theory it has more upside potential over the near term before it runs out of room. My target for Nova, currently trading around 9.36, is $13.02, but you’ll need to be careful, since there’s a hidden-pivot resistance at $9.85. The best way to buy Novagold would be to consider $9.85 a breakout point. That is, instead of looking at the obvious break-out point, last February’s top at $9.79, you can use a buy-stop at $9.86.
RESOURCE INVESTOR: Would you recommend using a trailing stop on Novagold, as well?
RICK ACKERMAN: That can wait until the stock exceeds $9.86, at which point the $13.02 target will be in-the-bag. You don’t want to risk getting shaken out of the stock before the biggest part of the move begins.
RESOURCE INVESTOR: Now that the HUI has broken out above its 2003 high of 260, a lot of people are getting excited. What do you see for the index in the future?
RICK ACKERMAN: Over the near-term, there’s room for the HUI to move. At the moment, 265.82 is the critical number, but if the HUI exceeds it by as little as seven cents, it’s going to at least 274.69. And if that number is breached decisively, look for a minimum 309.80 by February or March.
RESOURCE INVESTOR: What else is on your mind in the resource sector?
RICK ACKERMAN: I recently put out an alert to take profits on platinum near $1,100. The goal is to replace whatever you sell when the metal pulls back $200 to $300 an ounce. Even if the pullback turns out to be much less than that, profit-taking is still justified because the rally target is so clear. I’m suggesting that you cash out one-third of your platinum nobles, or whatever platinum you hold, between $1,090 and $1,100.
Cameco [NYSE:CCJ; TSX:CCO], a uranium play, is another stock I like. We’ve traded it very successfully in Rick’s Picks, exiting a small position not long ago with a profit of about $6,500. The stock is currently trading around $62.17, but it looks imminently bound for at least $70.88, a major hidden pivot. On a cautionary note, I should mention that stochastic indicators for Cameco look somewhat menacing. A pullback could shake the stock down to as low as $53.44, a hidden pivot with the potential to become a base for another big leg up.
RESOURCE INVESTOR: Uranium’s definitely been on our readers’ minds lately – what can you tell us about Fronteer Development Group [AMEX:FRG; TSX:FRG], one of the hot up-and-comers in that field?
RICK ACKERMAN: Fronteer, currently trading $3.54, has a very clear price pattern. I foresee a rally to at least $4.28 before it meets serious resistance. That’s 30 cents above the high recorded in late November. The stock looks good, and I like the stochastic signs here because Fronteer is having trouble getting oversold. That is, buyers won’t let it get oversold - and that’s often an indicator of more strength to come. I think Fronteer is ready to pop again, presumably to at least $4.28. But if it goes even three cents higher, expect the trend to continue to at least $4.56. That’s when you’d have to turn cautious again.