Skip to content

KGC Flag breakout

October 11, 2007
tags: ,

Here’s a trade I took today.
Gold has been looking great lately and consolidating after some major gains. There is a symmetrical triangle of sorts going on for the last 7 trading days or so. Will it break higher from here? Looked like it was going to today, but then it came back off the high. Check out the chart for gold here.

In any case, the gold stocks have been doing very well as is illustrated by the $XAU (the GDX for an ETF) or the $GOX here. It has broken through some long standing resistance from a big sideways range and even showed new support at last month’s resistance level from which to move higher.

(Click image to see it larger.)

I chose to enter KGC today for a stock play as it looks to have broken a bull flag on top of a serious flag pole. Like most stocks in the gold group, it doesn’t have a 3.25 F/E score. Honestly, this is more a technical trade than anything, but looking over the fundamentals, I’m still happy with it.

It has good sales and earnings growth in the last year. Very good earnings growth. The Estimates are a bit spotty, but all together acceptable for me. PEG using the 5 year annual growth estimate of 10% is about 3, which is way to high. But using this year’s estimate of 47%, it is well under 2. Also, I like that the current P/E of 31 is well below the group P/E of 64. Finally, it has met or beat its estimates every one of the last five quarters and the analysts are mostly favoring the stock.

Long term view shows volume building steadily to a high volume month in September with a big bullish candle. October pushing higher so far and a very old level shows 20 as a likely resistance level and great target.

A slightly closer look at the weekly chart shows some stepping up through bases. Three weeks ago broke through resistance on high volume.

Finally, the daily chart shows a serious rally with the price of gold and a flag developing as gold consolidates too. Today’s break may be premature, but it had a nice volume spike, so I took it.
The Flag pole is about $4 high which, tacked on to the upper line of the flag, gives a target of about $19.25. I bought at the end of the day at $15.68 sizing my position for a stop loss level of $14.25. This gives me a risk/reward ratio of 1/2.5. If I let it go to the 20 area shown on the long term chart, it is a bit better.

I will let the stop take me out to the down side. If and when it reaches the $19 area, I will consider whether to take 1/2 at 19.25 or go for all at 20 depending on market conditions and gold. If conditions warrant it, I will let it run and trail a stop.
It is possible for these targets to be reached before earnings come in on Nov. 7, but unlikely. I am prepared to hold over earnings.


One Comment leave one →
  1. Jim permalink
    November 3, 2007 5:55 am

    Nice plan, nice trade! Go KGC.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: