Sunday, 21 December 2014

Weekly Update - Week ended 19 December 2014

Market Summary and Technical 

  • Rebound in US equities – correction over or setup for further downside?
    • Despite rebound, divergences apparent in market breadth indicators
  • S&P500 bounced off support at 1970; at resistance now
  • Russell 2000 held 1150 support; Resistance at 1200 to 1210
  • Gold shows strength despite dollar strength – further upside once dollar begins its 

Readings and Trends 

  • Federal Reserve replaces "considerable time" with “patient” – Tim Duy’s read is that Fed is seriously looking at mid-2015 to begin the normalization process
  • EM currencies have been selling off – notwithstanding whether they are oil importers or exporters (FT)

 Investment Implications and Opportunities 

  • Timmins Gold (TGD) Update
    • announced the acquisition of the Caballo Blanco Gold project for $10 million in cash and 16 million in shares
    • ‘projected production from the project would nearly double Timmins Gold's annual production to over 220,000 oz Au with the addition of ~90,000 oz Au at a projected cash cost of $784 per ounce’
    • ‘pre-tax NPV of US$128.2 million and IRR of 37.5% at a gold price of US$1,200 per ounce and a discount rate of 5%’
    • ‘Initial capital costs of $84.8 million’
    • Capital outlay should be manageable given low gearing – getting a good price close to a possible bottom for gold prices
  • Energy counters in bottoming process – I might look to add shares in ESV, GLF and NOV in the next pullback  
  • Broader market correction – possibly interrupt by Fed statements this week – but for how long
    • Market breadth shows divergence
    • HYG looks like a dead cat bounce 

 [Disclosure: I am long call options in TWM, ESV and GLF]

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