I was out of my small long in Mml and just holding St Barbara. They're back up to 43.5 and doing well but they're not the most exciting stock in the sector. Fortunately, a couple of gold stocks I've been following have had decent corrections and I've bought on the open. In both cases, even though I'm chasing a small breakout, it's in the context of a correction and not at the top of the range so I feel quite comfortable about the trades.
The first one is in Avoca resources. This is a good opportunity because they announced a merger of equals in early September with Canadian listed company Anatolia. It stopped momentum in its tracks and the stock has seriously underperformed the sector since then. I've been itching to buy this for about a week but the pullback was pretty deep and I was concerned that maybe it had just been shoved off the radar. I went long this morning at 306 and 309 for a 307.5 average and now that it has passed a minor swing low at 310, I'm fairly comfortable that it will get back to, say, 350.
In investment terms, the voting on the merger isn't due till mid December so there's time for a bid for Avoca and even if the merger goes through, the merged entity would be a mid cap gold stock in a time when there are few around following the takeover of Lihir. Again, this seems a reasonable prospect.
Here's the daily.
The other gold stock I've bought is Perseus at 303. It's the first time I've traded this but I've been watching the stocks in the Asx 300 gold index and this seems liquid enough and interesting enough to be able to trade. Pru is due to start mining in Africa in FY11. The only forecast I've seen is for a prospective p/e of about 11 in FY12 but with the gold price and the AUD flying around, I assume that's pretty vague. The interest in Perseus is probably centred on its strong reserves with figures liable to be upgraded over time.
I really could have got in earlier here but it's still comfortably below the recent 336 high and has made a nice buy signal.
Overall, the market is up 55 points with the prospect of more strength, I think, because the Dow Jones, S&P 500, FTSE 100, CAC 40, DAX, Hang Seng Index and the Shanghai market are all trading cleanly higher while the Australian market still struggles to get through recent highs. Japanese and Korean markets are lagging but they're probably special cases as exporters with currency problems. We share the problem of a strong currency but resource prices more than compensate.
Kzl has continued its breakout after the late rally yesterday and is up a further 4 cents to 79.
12.14 Kzl is at 81 now, having been as high as 82. I'm trying to work out how many, if any, I should sell and where I think it can go in the short term. There was a congestion between late January and late April and the stock spent most of its time between 81 and 90 before eventually failing. I'm assuming that the top of this band might provide a short term limit because even though I'm assuming we're entering a third wave (third of a third, to be esoteric) move, it's already covered about the same ground as the first wave and the usual guesstimate of 1.6 times would roughly take it to 90.
The backdrop is that explosive moves are becoming common and it may be wise to allow room for that. Other factors are my psychology and trading habits which tend to the conservative side.
What I've done so far is sell 10k at 80, having bought 70k at 68, because I want the psychological boost of having put some profit in the bank. This generally frees up my trading but I do have to then watch out that I don't start dumping the rest for no particular reason, having released the pressure.
In relation to the above, the earnings context is for 7 cents this financial year and 10 in FY12 so that the prospective p/e ratings are not onerous. This is based on two analyst reports tracked by FnArena so it's not a big sample. Also, the most recent update was in late August and zinc has outperformed the AUD since then.
3.04 I've been concerned that the market is making a broadening top, which is the sort of action which can give you whiplash. Here's the Xjo recently.
Standard charting techniques would have these break to the downside but I think with other markets having broken out quite cleanly, it's not such a worry.
Here's the S&P 500 for example.
3.48 I was just looking at a weekly of the Xjo, trying to project targets for the rally if it clears this resistance. I notice that there's a nice example of an expanding top leading up to the April peak.
As for the situation now, it looks to me like support held, we had a higher low and now the index can accelerate through to next year.
4.13 The Asx 200 index closed at 4699.1, up 79, which is a closing high for the last 4 or 5 months even if still below the intraday high from Monday.
Most of my stocks did ok, Avo kept running to close at 318 while Pru chopped back a couple of cents to 301 but held onto a 6 cent gain for the day. Gold is up a further $7 in the Asian session.
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