Thursday, July 9, 2009

Rio Tinto - How a Bear Devastates

I follow blue chip base metal stocks closely as I am very bearish on them. Rio Tinto (ticker: RTP) is the world's second largest mining company and focuses on base metals (e.g., aluminum, copper). The stock has been pounded over the past month. The chart below shows how fast a bear can devastate a stock that has been climbing for months (6 month daily chart):

Base metals are important for growing economies. Economies are shrinking and deflating. Over the next 6-12 months, base metals are toast and so are the companies that mine them. A printing press can't stop this fact in the shorter term.

Royal Gold (ticker: RGLD) is a buy again and should be bought anywhere at 39 or lower for those willing to take a risk on a speculative smaller cap stock. I was hoping for lift-off after the last correction but I am a patient bull on this stock. Gold did not bottom at $913 as I has predicted and is a buy for longer-term investors. I don't think we'll go below $880 and then we'll be set to re-test the all-time highs.

If Gold mining stocks make lower lows than yesterday's lows, then we are in the final wave "C" part of this correction and traders and longer-term investors will be presented with a buying opportunity in GDX (individual stocks have their own charts but the principles are the same) very soon (a week or so). Wave "C" corrections can be fast and brutal in Gold mining stocks and the opportunity to buy GDX in the 29-31 range will probably last 2-3 days. No rush to buy, but be prepared. Again, this may well not be "the" low, but nothing is certain in markets and this is a low-risk buying opportunity for the intermediate term. A quick 20-30% return is likely for a trade (more with options).

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