Now Is the Time to Be Buying Goldcorp

[The following is excerpted from Bill Cara's Daily Report]

In last weekend’s Week In Review, I stated:

Technical analysts looking at the major equity market indexes of various countries this weekend must be stunned to see a consistent pattern where prices are on the verge of simultaneous collapse.

I hope my opening paragraph captured your attention because it also means the end of the Bear is one step removed. Just one more leg down – probably 10-12% -- is what the sellers will take to complete the bottom, I believe.

Now is the time to be scouring the market for the best quality companies that trade at attractive valuations. Now is not the time to panic.

Earlier this year, I found the appetite for goldminer shares to be extremely voracious, so I opined that it was time to feed these traders by selling shares. I recommended selling Goldcorp (GG) at US$44.71. Wednesday, GG hit a low of $24.79 and closed at $26.42. Now is the time to be buying.

Because the price of gold has fallen to the mid-700s and silver to the low 10s, Wall St. analysts will be downgrading these commodity producers now on the basis their reserve calculations must be re-done at lower values. Remember, these are the same analysts who were, unanimously as I published in their own words in my report, so bull-minded early this year.

In most securities broker-dealers, the analysts and salespersons are not traders. In fact, most of them make lousy traders because they drink their own lemonade. Traders often see lemons, and take advantage of the weaknesses of their colleagues.

A true story is that when I worked at Dean Witter (now Morgan Stanley) over 20 years ago, we had a mining analyst in New York who, if he put out a new Buy report, we would sell into the bullish order flow. Call us skeptics, but I assure you we made more money trading than the clients of that analyst.

There will be plenty of downgrades in the Oil & Gas, Base Metals and Precious Metal industries in the next two months. That presents you the best opportunity to buy.

When the market comes to you, you buy; when it gets away, you sell. As a rule.

But you still need to do you own due diligence, and follow your own trading plan. If I told people I don’t know that GG should be bought at 26, I know for certain there will be somebody out there who will be screaming at me that their sister was able to buy it later for 25 or 24. The point is, I don’t know you and I’m not trading for you. Everybody in the market has unique characteristics in terms of risk tolerance, financial resources, strategies and tactics. You have to make these decisions accordingly.

As the DJIA heads to a cycle bottom about 1000 points lower and Crude Oil drops from 102 to maybe 80-85 in the next couple months, there will be downward pressure on the stocks of quality commodity producers. That will be the time to use the ammunition pile you have been building.

The next Bull will be economically driven, not financially driven, which will be something quite new in the annals of trading.

Comments

[dlaw:]

What in the world does Goldcorp have to do with an "economically driven" recovery. They produce a yellow metal with few industrial uses that has lost 8% of its value in a week. A week!

How's Goldcorp gonna look to you when gold is $650 an ounce?

2008 Sep 12 03:33 AM

[fxtrader07:]

well written, convincing article.
One observation, though:
'...there will be downward pressure on the stocks of quality commodity producers.'
Well, maybe we have different measures of 'downward pressure' but to me there has been a bloodbath going on for the last couple of weeks in high quality commodity producers. Of course, that doesn't mean they couldn't fall even more, but to me there has been panic sellling and heavy liquidation going on like in almost no ther sector - except earlier in financials and homebuilders, perhaps

2008 Sep 12 03:38 AM

[fxtrader07:]

@dlaw: gg is down 50% while the 'yellow metal with few industrial uses' has fallen 25% (both from their respective peaks). You might want to look at the recent statements by the German Bundesbank, which is still the second largest gold holder in the world and their comments on gold's substantial role as an anchor and backer of a currency's value. Funny thing is, people sold everything related to 'industrial commodities# due to fears of a worldwide recession. And while paper money gets printed like mad and a 500 billion bailout of fannie and freddie gets underway, gold gets sold off. Go figure: banks have witten down 500 bn in impaired assets - and 500 bn will probably be replaced by taxpayers via the fannie/freddie bailout. asset destruction, deleveraging? sure. but that paper stuff gets replaced with new paper stuff instantly. The recent dollar rally has zero to do with a comeback of strength of the greenback . it's simply overwhelming short term money flows (capital repatriations from overseas investments). once that passes the dollar will see a terminal drop which little ammunition left to stem it. Gold will be at 2000$/oz within 5 years. Now, how would GG look then?

2008 Sep 12 03:44 AM

[tomflint:]

Bill -- a great article. But I think that you could work the "economic" angle a little more. You may want to elaborate how gold participates in the economy-driven world market, other than the inverse of the US dollar.
* dlaw -- at the same time, there is much more to gold than a "a yellow metal with few industrial uses" - don't you agree?

2008 Sep 12 04:07 AM

[John C. Lee:]

Technically, GG has a lot more room to the downside. Honestly, I would wait until capitulation is hit.

2008 Sep 12 05:21 AM

[fxtrader07:]

love those TA-comments. TA-guys always give the impression they 'know' when capitulation is to come, whether it has happened or not and hence when stocks will bottom or top. And yet, looking at the world's richest investors there is NO technical analyst type of guy among them.
I have tried TA myselves a lot for many years, have met a lot of TA people (some are way smarter than me) and after all that I can say with confidence that there is only one surefire way to make consistent money from TA: by selling books and seminars and software (e.g. trading systems based on TA) covering the subject.

2008 Sep 12 06:59 AM

[marxbites:]

dlaw:

Short gold and silver right here and go long the USD.

Let us know how that pans out for you by Xmas si vouz plez?

2008 Sep 12 11:02 AM

[Chickenpookie:]

Anyone drawing conclusions from this snapshot of Bill above should be cautious until having studied Bill carefully. He is as complex as the market, just read his book and his blog sites and you'll find out for yourselves.

I have not found Bill to be wrong about anything, but you have to read and understand him throughly before you can make educated decisions (If you want to make educated decisions). His intention is to get people thinking for themselves about how markets function. Although you could, don't overlook what you might learn from Bill by just going on the snapshot given above.

Bill is the real deal, read and study him and you will agree.

2008 Sep 12 11:25 AM

[User 30121:]

Hey Bill (Cara),

A couple weeks ago you were saying that we PM hoarders were a bunch of dumbasses for holding on to our PMs. Now your saying go buy some! Have you ever heard of buy and HOLD!

During this "downturn" anyone (PMers) who hasn't been BUYING to strengthen their position, hasn't been paying attention. Gold/silver will be flying HIGH very soon. And Bill, you will be saying what? Maybe you and Gary North should meld your articles together since he KNOWS everything there is to know about PMs. So he says!

2008 Sep 12 12:49 PM

[whidbey:]

Bill, I think your work is interesting. But I am reluctant to buy gold until the fall sell-off is completed since gold may get caught in the chaos. In general, contrary cycle plays were worth looking into however, the fundamentals may move against gold as energy and dollar start to decline. But, interesting.

2008 Sep 12 01:06 PM

[Chickenpookie:]

Some folks don't understand why Bill does what he does for the same reason they will never understand how he does what he does. Bill is not telling you what or when to do something, he is trying to get you to think for yourselves and he's sharing his perspective on how to accomplish that. All for free, on his own dime.

You should be thanking him for this.

2008 Sep 12 01:52 PM

[moab:]

"A couple weeks ago you were saying that we PM hoarders were a bunch of dumbasses for holding on to our PMs. Now your saying go buy some! Have you ever heard of buy and HOLD! "

You are the dumbass! Bill is a TRADER. Traders do not buy and hold the bag on the way down. He was saying that if you are trader you should have sold weeks ago. Now is the time to start looking for an entry for the next swing up.

GG is up 10% today. But keep criticizing.

2008 Sep 12 02:19 PM

[lcs:]

GLD is just inverse the USD. Bill noticed that USD reversed yesterday and made the post this morning.

2008 Sep 12 04:00 PM

[Chickenpookie:]

Ics - "GLD is just inverse the USD. Bill noticed that USD reversed yesterday and made the post this morning."

Read Bill's back posts for the last 4 months and you'll find that you're kinda half right... Otherwise, if you don't you're bound to miss out on the next important move...

2008 Sep 12 04:33 PM

[davemcc3300:]

What if Obama wins and begins selling Fort Know gold to finance his programs? How far down could gold fall with a steady supply being pumped onto the market?

2008 Sep 13 12:44 PM

[Chickenpookie:]

davemcc3300 - When was the last time an independent (or any) inventory audit of US gold reserves was accomplished? How are we to know if the US gov. actually has an appreciable amount in possession? I'm not claiming they don't have reserves but I wonder about this occasionally, don't you?

2008 Sep 13 10:03 PM