CXB/TSX Gold Index/Gold – A Tactical Chart Review
Calibre Mining Corp. (TSX: CXB) (OTCQX: CXBMF) received an analyst update from Canaccord Genuity that “doubled down” on a prior buy rating for the company, maintaining their target price of C$4.25 despite the recent slump in gold.
Let’s review the reasoning behind their analysis.
The Canaccord report affirmed the validity of the “hub and spoke” processing model. This approach to mining gold deposits is becoming more common as mine developers focus on the profitability of mining gold deposits rather than “booking gold ounces into inventory” by going after very large deposits that have production challenges. The “bigger is better” adventures of the last gold upcycle resulted in some pretty hefty asset write-downs by senior producers. The “hub and spoke” model is a good way to create a profitable mining situation that can be expanded through exploration success.
The Canaccord mining research team astutely points out that CXB has “built-in” leverage to production (and profit) increases in the future because of the under-utilized capacity available at the Libertad mill. Exploration successes can easily be converted into production gains. Production gains add more revenue to the operation and hence, is justification for the target price for CXB shares.
So, with all this positive upside, what does the stock chart look like?
As we can see, RSI is in a very good spot to commence a recovery in price. Also, it is interesting to note that the current price decline did not enter the Ichimoku Cloud. This shows uncommon strength as the S & P TSX Global Gold Index chart shows a bit more weakness than does CXB.
In this chart for the S & P TSX Global Gold Index, we see that the 280 level is a key level as it has acted as both support and resistance in the past. Although not shown on this chart, we also know from our past charts that from the low in 2008 to the high in 2011, the last Fibonacci support level is at 280 as well.
Note that RSI (the bottom indicator bar) is near a low rather than a high. This may become more important over time as the index continues to improve. There is lots of room left before RSI gets back into “overbought” territory.
Additionally, MACD remains weak for the TSX Gold Index chart, and we await a turn back up of the signal line over the trigger line, preferably before both lines cross back under the zero line.
Now, for a quick review of the weekly gold chart.
Here we see a repeat of the patterns for RSI/MACD/Trend Momentum of both CXB and the TSX Gold Index. It is clear that a turn must occur in MACD where the signal line re-crosses the trigger line from beneath it. This will signal a return of the gold market to a much more bullish condition.
Gold will no longer have to endure the “piling on” by global speculators/traders/investors. Instead of “sell the rallies,” it will become “buy the dips.” Traders have no problem switching from short to long when market conditions change. By market conditions, we could interpret that to mean whether MACD (Trend Settings) is falling or rising and above or below the zero-line.
Summary and Wrap-Up
Our three charts clearly show that CXB is outperforming both the TSX Gold Index and Gold.
As far as the technical condition of the stock chart goes, CXB is still well within acceptable ranges for a retracement and has not broken down.
Investors can use the current weakness in the CXB to slowly work into a position if they are not already shareholders. These charts provide some trade guidance. It seems likely that the CXB chart will respond more quickly to positive changes in the gold price than will the TSX Gold Index chart.
The recent analyst report by Canaccord Genuity recognizes the value of a quick transition of exploration success to production increases.
A fundamental case for valuation has been made.
Disclosure: Calibre is an advertiser. We also own shares and options.