What was I thinking last time I visited Goldcorp (GG) and wrote an article stating that the company has made quite a turn around? If I had looked at the signs, I would have observed signals that the bullish run was screaming it was over. Because of the influence of the fiscal cliff and my own belief that gold would go up temporarily, I looked at a short term income strategy using call options. Here is the suggestion I made:
The Options Play
The stock is presently trading at 44.10 and I do not see a strong enough pattern to rely on. But with the fiscal cliff influence and believing gold will go up in the short term, I would be more apt to create a short term bullish income strategy.
- Buy the January 2013 call with a strike of '44' (priced at $2.76)
- Sell the January 2013 call with a strike of '45' (priced at $2.23)
- Net Debit to Start: $0.53
- Maximum Profit: $0.47
- Maximum Risk: net debit
- Maximum Length of Play: 3 months
Reasoning behind the trade
- Good third quarter movement may lift stock
- Fiscal Cliff fiasco could temporarily lift gold prices
Those of you who have been following the stock know that it started its downward journey about this time and my suggestion of a trade could not have been farther from accurate. I don't think I could have been more wrong about anything. Now we have seen a long downward move, is the stock ready to make a turn upward now?
Recently, analyst Credit Suisse Group downgraded its rating on Goldcorp from Outperform to Neutral, and lowered its price target from $58.00 to $45.00. In a statement the company said:
"Credit Suisse target price is reduced on lower cash flow in 2013 and lower NAV based on revised estimates for Penasquito and PV and on lower multiples (NAV and OpCFa) for GG based on lower near-term growth. We continue to see near-term headwinds for GG with a likely capex increase and a reduced production growth profile near term."
So there are definitely headwinds in 2013 for Goldcorp, but some believe that gold mine stocks may be a good investment in 2013. Certain gold mining stocks have dropped and prices look inviting.
- Newmont Mining (NEM) trades at 9 times projected profits
- Barrick Gold (ABX) is at a decade low
- Goldcorp is also at rock bottom prices\
As I have written earlier, the concerns that exist in 2013 for the mining stocks are higher operating expenses which could threaten margins. As companies continue to look for ways to reduce operating expenses, energy prices will dictate much of these businesses' success next year. The ratio of the NYSE Arca Gold Miners Index to gold prices has shrunk to about 0.7 - the lowest in 12 years, and less than half its reading in 2006. What does this mean? There is a good chance that gold stocks could start performing better than the metal itself.
(click to enlarge)
Technically Speaking
Goldcorp is still in a very strong bearish trend that started back in mid September when the stock was revealing over bought signals from the RSI indicator. That's when it also reached its high of "47" for the quarter. Since then the stock has lost as much as 27.6% in value. The stock presently rests around the "36" level. I like to ask if the stock is ready to turn around as I make my observations. The present move down looks very strong. The stock has barely even touched the middle Bollinger bands that it is using as resistance. The MACD MAs also appear to be a bottom dweller with no desire to move up. So the present trend still looks strong. The stock is reaching a support level that I would like to see if it will push through or bounce off of. Momentum may push through and bounce back respecting the level.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
