2002 - PM Stock Deja Vu?

We appear to be right at a very interesting juncture in the Precious Metals Sector at this time. As I noted in the last editorial, at this juncture in the 70's fractal Gold made a vertical move that would suggest a rise up into the 1600s over the coming 4 or 5 weeks. Further, I have a potential target for Gold to rise up to 1800 to 2100 into May/ June of 2011 with a median target of around 1950. Let's look at the long-term Gold chart.

$GOLD

The top line in this chart comes in around $1972 into mid 2011. I have other work that suggests a higher potential price up to around $2250.

PM STOCKS- 2002 Deva Vu?

A similar move in Gold to our expectations set forth, above, would likely set the Precious Metals stocks afire as the same fractal junction back in the late 70's. We also saw the PM stocks on fire at the primary fractal in the recent sequence back in early 2002 and the secondary fractal point back in late 2005. In the last editorial we looked at the similarities in the HUI chart for 2002, 2005, and current period. To give us a bit of a different look, today, let's consider the chart of USERX- another mostly large cap Precious Metals stock chart.

In the first chart we can see that USERX has broken out of the large cup formation with price running up the green directional line toward the top of the channel which we expect to be the destination point into mid 2011. During momentum runs professional traders tend to step out of the way of the train coming down the tracks so this coming stock options expiration might not have much of the usual negative effect on the Gold Stocks.

The next chart of USERX shows the similarities of price action in early 2002, late 2005, and at the current time. I have marked the similar price points in 2005 like today. More interesting is the fact that around this same similar juncture (blue circles) back in 2002 and 2005; USERX showed a gap-up move to bust through a major angled line of resistance. Will it be "déjà vu- all over again" in the near future? I think we shall soon see.

The USERX charts like the HUI Charts we showed last week are primarily composed of the larger cap Precious Metals stocks. Thus, we would expect the PM large cap stocks might have some very good gains into mid 2011. For instance, if the HUI and USERX resolve in the coming period like they did in early 2002 and late 2005, I'd expect the price rise in the chart of GFI to follow a higher slope going forward- maybe something like this.

As the larger cap stocks run higher at this juncture, I'd expect the whole PM sector to explode along with them. Let's take a look at the chart of NSU. A few months, ago, I picked NSU as one of my favorite PM stocks for the next two years. The company has announced that they expect their first gold pour to take place in this 4th quarter with full production rising to around 450,000 ounces of Gold for 2011 and 2012. Those are some pretty hefty numbers to throw at a Gold price which is going parabolic.

I have a potential price target for NSU of $16 to $18 into mid 2011. That would be the expected price rise if the NSU price continues to run up the current channel it is rising within. Yet, there are significant points to make about the chart. First, price has risen above practically all of the horizontal resistance on the chart. In fact, the NSU price appears to be coiling at the last real angled price resistance line as seen at the green line on the chart. Thus, there remains very little horizontal resistance nor angled resistance left on the chart except for "old high resistance", all the way up to the upper blue angled line off of the old high. The large cup break target is to 18, but I suspect we might see a bit higher price into mid 2011 unless the company fails to meet its production deadlines.

A similar situation can be seen in the chart of NGD. We can see that price coiled at the last line of major horizontal resistance, then exploded upward. Now, other than "old top resistance on the chart- there is nothing but air up there.

From my perspective, things are looking "real up" for the Precious Metals Sector for most of the next two years.

GENERAL NOTES

1) It looks like the juncture for the large cap stocks to start to run is close at hand. Yet, the intermediate producers and soon to be producers are still the sweet spot of investing at this time. Thus, we tend to favor stocks like NSU that should be producing, soon. Charts suggest a potential target of 16 to 18 on this run- maybe as high as 22. NGD is another. Charts suggest a potential target of 22 up to a possible 28. If the HUI bust out as the charts suggest, we'd expect a higher sloped rise in the intermediate producers along with that HUI rise…………read in "GR terms" that means that I expect NSU and NGD to bust vertically out of the tend channel they are currently rising through.

2) The explorer stocks are starting to run, and we'd expect them to perform much better into mid 2011. Many of these charts have exhibited a "low chop" rise that is breaking out. The next target for many of these charts will be the "old highs."

3) Per the LT fractal back to the 70's, the PM stocks still might have 90% of their gains ahead of them before this PM Stock Bull is over. We have only reached the top of a mole hill on our trip up the mountain, it seems.

4) A few months, ago, we had outlined a potential range for $Gold to rise into in mid- 2011. We placed that range at 1800 to 2100 with a mean of around 1950. There is angled line resistance around 1875 in that time-frame that might serve as stiff resistance, yet, the potential for Gold to rise up to around 2250 into mid 2011 is still there. With the above noted, we will simply track the rise in Gold to see how it plays out.

5) We have a basic website ready for what will become our subscription site. We are still working on many things such individual PM stock charts, new LT charting software, etc. Anybody who wishes to be contacted when we open up the site can send an e-mail to ….