Agnico-Eagle Mines: A Trade That Can Help You Avoid the Coming Correction

Nov.16.10 | About: Agnico Eagle (AEM)

by Mike Turner

We are now only two weeks away from what my systems are telling me should be a major market correction. My advice to you is to raise stops and consider taking profits. That is of course, if you happen to not believe that the Federal Reserve can simply overwhelm a market that is experiencing a struggling economy and an ever growing mountain of debt.

Stock prices do not move higher or lower because of fundamentals, technicals, geo-political events or global economies. Share prices fluctuate because of one thing and one thing only: investor demand for shares or lack thereof.

Let's say you gaze into one of my time-cycle forecast charts and see that the market is getting prepared to plummet. You know these forecasts are right about 80% of the time, so you are thinking, "Maybe I should get back to cash, just in case Mike Turner and his time-cycle charts are right." And you might be thinking, "The risk is just too high to stay fully invested."

But, let's say you happen to have $100 billion and you need to get it invested this month -- and another $100 billion next month. You know that whatever equity you buy, you will be driving the price higher. And, it takes a LOT of work to get that much money into the market. Now you have another set of risks -- the risk of not investing the money that you are required to put into the market.

So, just to keep things on the safe side, where would you put that money to work? Odds are, you would be buying hard assets -- things that have intrinsic value -- things that will hurt you if you drop them on your foot -- those kinds of investments. That would be gold, silver, copper, iron and even oil. You might not be able to sell shares of XYZ Services Company, but you can always sell bars of gold or silver or barrels of oil.

This is why commodity prices continue to move higher. There is too much money chasing too few shares of commodity-based stocks. This dramatically increases demand. And the higher the demand, the higher the share price for commodity-based stocks.

So, even though the market (including commodity stocks) should have a normal correction and my analysis says a correction is long overdue, I suspect hard asset stocks will continue to move higher as long as Ben Bernanke keeps feeding the market with an unlimited bank account.

With all of the above in mind, let's look at the gold miner index:

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As you can see, a small pullback is likely for the next week or so, and then the chart explodes higher.
One of my favorite gold stocks is Agnico-Eagle Mines Ltd (NYSE: AEM). This is a Canadian based gold and silver miner that has a raw gold production cost of about $400 per ounce (according to the CEO). With gold now selling for more than three times that number, the odds that AEM can produce substantive profits into the future are very high in my opinion.

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As you can see above from my Demand Fundamentals and Demand Technicals, this is a strong stock with all the right indicators.

But with the expected pullback this week, I do not want to trade up for it. As such, I am putting my limit order well below this past Friday's closing price. Hopefully, we can pick up a bargain and even more hopefully, the time-cycle chart for the next 90 days proves to be accurate.

The two tables above are new to you even though I often refer to my "Demand" fundamentals. I go into quite a bit of explanation in my Mastering the Markets letter this week regarding the significance of each of these indicators.

In short, I have found a dozen key indicators regarding a stock's fundamentals that I believe have the biggest impact to driving the demand of investors to own more or to sell more shares of a company. Demand drives prices -- both up and down.

In my rules-based trading methodology, I have developed a scoring and rating process whereby I can score a stock's Demand Fundamentals and Demand Technicals. Each component has a relative value to what I believe are the most important aspects of each stock and has the greatest impact on driving demand for shares.

Take a look at these two tables. I think you will find the information extremely valuable and will give you a very quick assessment of the merit of the company and the stock.

Based on the analysis above, I believe AEM is a good trade to put on now with a limit order at $77.03 and stop loss at $71.94. My target price for this trade is $96, which would give traders a +24.6% profit.

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Disclosure: Neither Mike Turner nor StreetAuthority, LLC hold positions in any securities mentioned in this article.