Hecla Mining Update - Stronger Than The Rest...

If gold breaks out to clear new highs shortly, as it looks set to do, then silver is likely to make a "slingshot move". It has already worked off a portion of the remaining resistance approaching its highs on its latest advance and so a gold breakout and advance towards $1300 should see silver initially run at its highs in the $21 area before eventually going on to break out to new highs itself. This kind of action will obviously create a highly positive environment for silver stocks, especially those which have performed well technically in the recent past, as is the case with Hecla Mining.

On the 1-year chart for Hecla we can see that a fine Double Bottom formed in the stock between last December and March. It broke out of this base pattern in May and June, but as it rose through a still steeply falling 200-day moving average, it was clear that it was too early for a sustainable bullmarket to get going. So it slumped back into the base pattern to do more work, which as we can see allowed time for its moving averages to swing into bullish alignment. The extraordinary power of the advance in recent weeks which involved the price advancing steeply on persistent heavy turnover has strongly bullish implications. Furthermore it indicates that this was the true breakout move, not the May -June advance which was on unimpressive volume, which suggests that the consolidation from June through early September was part of the base pattern, meaning that the entire base pattern from last October through to early this month was a Pan & Handle base that included a Double Bottom. As we can see it has reacted back over the past week, which is hardly surprising given the fact that it had become critically overbought on short-term oscillators, particularly the RSI indicator (not shown), and also given the extreme COT readings on the silver chart. So "a little rest" was quite in order and a healthy development necessary to sustain the uptrend. Looking at this chart you can be forgiven for thinking "It's overbought - it has quadrupled from its low last November, and it has opened up a sizeable gap with its 200-day moving average." Sizeable gap? - it's nothing compared to the gap with this average late last year, and as we will now see on the long-term chart, Hecla is still comparatively cheap, historically speaking.

Our long-term chart for Hecla goes back to the start of the Precious Metals bullmarket late in 2000 and it is amazing to see that during last year's deflation scare the price dropped back to where it was at the start of the bullmarket - it became absurdly undervalued, dropping by well over 90% from its highs, which is extraordinary given that Hecla is a well established top ranking silver producer, not some "tied together with string moose pasture stock" . As we know, late last year most investors had about the same level of "cool" and reasoning power as chickens in a henhouse that is being visited by a fox, it was mindless blind panic. Thus it is misleading to compare the current price of Hecla to the low late last year and declare it to be overvalued. As we can see it is still cheap compared to its overall level during much of this decade. The move above $4 this month was the breakout from the base area that we have already delineated on the 1-year chart, confirmed as valid by the heavy volume accompanying it that has driven the On-balance Volume sharply higher, which is strongly bullish, signifying as it does the birth of an important uptrend that should take the price substantially higher.

The positive outlook for Hecla naturally bodes well for the price of silver, and thus the price of gold. Hecla is a stock that we have traded well on the site this year, having bought it in March at $2.15, taken profits in it early in June at about $3.48 before a severe correction, bought it back late in June at about $2.66 and bought again late in July at $2.95 and we are still long.

Finally, many market observers are expecting a PM sector reaction now, on account of its short-term overbought status and the admittedly worrying looking COT charts. We were ourselves at the weekend and the sector has indeed rolled over this week. However, it is now suspected that this reaction may be a shallow affair that could be close to completion, especially as volume in big PM stocks is dropping right back. It is therefore considered to be in order to buy or increase positions in Hecla at this point and especially on any minor short-term weakness. Hecla may be forming a small bull Flag here. For safety, stop losses may be employed beneath the line of support at $4 in the $3.90 area with the option of jumping back in if the stop is triggered and the price reverses back above the $4 level again, although this involves some risk of being whipsawed if the price fluctuates around the $4 level.

Hecla website

Hecla Mining Company HL, trading at $4.44 at 12.35 pm on 22nd September 09.

Clive Maund, Diploma Technical Analysis
[email protected]
www.clivemaund.com

Copiapo, Chile, 25 September 2009