Newmont misses, shorts go bananas

When does the worlds largest gold miner become attractive again?

Back in September I wrote the following piece on BTG 0.00%↑ breakout. This was an entry I did take, but what I forgot to mention how I redeployed that capital…

The Newmont chart at the time looked like this… I made a note to myself: sell NEM buy BTG:

this looked like a head and left shoulder

Fast forward to today’s earnings call. Newmont reported higher costs to the tune of $150 per oz (to which they claim is temporary). They produce just under 7m oz per year (1b + difference), so naturally, the stock sold off 13b dollars as of this writing!

Why the firesale? Simple answer is the technical area of resistance turned a few weeks correction around in hours.

If you are like me, that sounds like a sale… feels like a sale. But what price do you limit order? More on that, lets look at the gold chart itself:

my gold chart from a few weeks back

I haven’t updated this chart since my last posting. A retracement to $2400 or so still seems likely. That means a bit more downward pressure on the likes of Newmont and other big names.

More than likely, that corresponds with what is the beginning of a larger retracement in NEM 0.00%↑ (the worlds largest gold mining company). Fundamentally, I expect NEM 0.00%↑ to continue to improve on its cost control as it integrates the Newcrest purchase further. 2-3 quarters from now, news could come as a bullish surprise, fueling the inverted Head and Shoulders potential setup you see below.

Ordinarily, I would not aggressively buy the right lower shoulder of an IH&S based on a chart alone. However, the broad based evidence, combined with economic fundamentals and technical support suggest this morph. The gold bull market provides further confidence in a dip buyers strategy!

Conclusion

NEM 0.00%↑ is a hold at this point. It turns to a buy below $46. As for the timing, I think this years outperformance will take a pause barring a vertical breakout on the metal. To the eye, it appears the pattern has work to do to morph into existence. Next year should be fabulous. Entries below that $46 level could have outsized returns!

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