Clive Maund
gold, silver, & oil shares
MARKET NOTEBOOK - Cream Minerals, ECU Silver & Golden Star update...
originally published November 10th, 2010We have certainly seen some extraordinary action across the PM sector this week. After pushing ahead in the early trade yesterday gold reacted quite heavily later in the day. Encouraged by gold's action early on investors pushed PM stocks strongly higher but then took fright resulting in a rather violent reversal to the downside. Actually, even at yesterday morning's peak gold was nowhere near as overbought as it was at its mid-October peak, so yesterday's reaction is viewed as perfectly normal and gold is expected to stabilize and head higher again soon. Silver on the other hand had become critically overbought by yesterday morning's peak after rising vertically and really did need to take to a breather. This is going to be a repeating theme in the months to come as the action in the PM sector becomes really wild. The overall powerful uptrend in both gold and silver is expected to accelerate further, but they will need these occasional sharp pullbacks to keep their respective overbought conditions within bounds.
There was big action in many stocks associated with the wild action in gold and silver, but there were huge moves in several of our stocks due to fundamental developments particular to them, which warrant immediate comment.
We got the second upleg we were looking for in Cream Minerals CMA.V, CRMXE, C$0.15, $0.15, when Endeavour Silver upped its offer for the stock of Cream from 12 cents to 14 cents, with, it is believed, other sweeteners as well. This may well not be the end of this story as the technically the massive volume and huge volume on the first upleg in Cream portended much higher prices to come, and fundamentally this makes sense, for if a predator shows up wanting to gobble up a company there has to be a good reason for it, which implies that Cream has some very worthwhile assets worth grabbing. So if Endeavour succeeds in taking over Cream for what is still a historically low price, it will no doubt feel like the cat that got the Cream. There is nothing to lose here and we stay long in the expectation of more possible surprises to the upside.
ECU Silver ECU.TSX, ECUXF, C$1.16, $1.18, has gone ballistic in recent days - no mean feat when you consider that there are 300 million shares in issue - which is due to them having discovered more mineralization at their Santa Juana mine. Another possible reason for the move is the approach of a behemoth wanting to take over the company - which is not a bad idea considering the direction the silver price is headed. After exploding higher in the early trade yesterday ECU dropped back to close near its lows for the day, but still up on the previous day's close. Might have been worth booking some profits in the early trade yesterday, but we weren't fast enough. Considered unlikely that ECU will drop back further so we stay long - if the suspected behemoth does show up wanting to grab a load of shares of ECU the stock can be expected to go a lot higher, especially as management are believed to own a goodly proportion of the stock.
A much more ugly story with Golden Star GSS, GSC.TSX, $4.91, C$4.93, which had been doing fine until they dropped the bombshell yesterday that they will be having reduced production for this year. The news went down like a lead balloon and the stock plunged on heavy turnover, the second biggest volume level for many years, which implies that it could be headed a lot lower. We are here to make money, or at least try to, not to support mining companies who have goofed up through hard times. Therefore this stock should be sold immediately. Despite the big drop we are only down a touch on our entry point as of last night's close as we bought it before it took off with the sector and rose to the $6 level.
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The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities.
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