Mines Management, Wheaton River & Concorde

All charts are log. Thanks to Stockcharts & Bigcharts

I have been concerned about the bearish rising wedges of these prime junior silver plays for a few weeks. Indisputably both will move in concert. With silver currently (13/11/2003) at $5.30, but the 'TOC' still not in, resolution is not yet decided - up or slide-ways?

(Note: These 2 charts are from early November 2003)

MNMM                                                   WHT

Even before silver decided to spring over $5 again I had begun to re-examine the charts of my largest (by dint of its spectacular growth) holding - Mines Management. More recently it had been suggested to me that Wheaton River was also a promising junior silver stock. I decided to look @ both WHT & MNMM.

This next chart is an update on an analysis I did on MNMM earlier this year when it was 'on the slide'. I found then (as now) that a parallel line set crossed from the right hand move upwards right across the chart, down into apparent random noise near the baseline. Now, as then, I felt that this 'noise' was not random at all - but part of an emerging larger pattern....

I also include on this chart the much shorter trace of WHT - both as a dark shadow to scale with MNMM (3), and also as an inset. Note the equally-spaced parallel lines & their similar angle of inclination on both charts. Note also that both charts exhibit slanted tea cup with handle formations - WHT over a much smaller time scale of course. Wheaton River has broken out of a symmetrical triangle (1) and is now in a rising wedge (2).

At the time of my first MNMM analysis profits from the 2002/2003 New Year Pop were gradually being eroded. MNMM was the stock that forced me to enter the Technical Analysis arena - I simply had to find out what was going on. Previously my investment strategy had been guided primarily by Fundamental Analysis - I was suspicious of TA.

Now, though, by using TA I correctly deduced that we were in a bullish descending pennant (6), held my position, and the rest (7) is profitable history - a breakout to the upside as predicted.

I had become a TA convert.

What I missed at the time - though it is obvious now - was that the falling pennant, taken together with its flagpole, was also forming a symmetrical triangle, with its apex at (7)!

Previously MNMM had been rising fast from nowhere in early 2002 in a bearish rising pennant (5) from which an eventual break-down proved inevitable. This was also predicted by the steeply slanted Head & Shoulders formation (4).

Some might say that, like WHT, MNMM is currently in another bearish rising wedge. Note that the blue and yellow lines - the sides of the MNMM triangles - are parallel sets - lending further credence to the bearish scenario unfolding - so much so that MNMM is currently triangle-bound, while stocks with an order of magnitude less upside potential leapt 20% last week. Is MNMM anticipating that silver is about to correct downwards short-term?

Well, investors in HL, CDE, PAAS, SSRI, all the big silver players, do not seem to think this is likely - shares in these companies are flying, especially the producers. (Does this indicate a sudden short squeeze where immediate availability is at a premium?)

Normally ascending flags/triangles/pennants/Concorde noses - (I see one sold at auction recently for a tidy sum - but would you want that in your living room?) - do resolve to the downside. Only in a super-bull will the upside be breached....

Before moving on it is worth considering - where do these triangles come from? The answer is - where parallel sets of support/resistance intersect. In all cases it is where support is rising faster than resistance. In this next figure I have drawn arrows to indicate the likelihood of breakout direction from a triangle - all other things being equal...

During flight Concorde's nose forms a symmetrical (Grey) triangle (support is rising at approximately the same rate as resistance). The next move could be either way - depending on altitude etc. Concorde's nose dips (Orange) during landing. Consider this to be bullish - the next move is likely to be a take-off. As Concorde climbs, (Blue) its nose points up. And what goes up must come down, surely?

Yes - unless it escapes Earth's gravity. With this silver missile it is entirely possible that there is enough fuel on board (demand > supply) to escape the price capping that has kept it on the $5 runway for two decades. When those wheels retract, the flight could be fast and furious. Geopolitical events seem primed to take off, too...

Bigger Charts

Projecting prices into the future requires longer charts than usual. This is fine if you have a roll of paper or a wide screen. With 600 pixels being the optimum size for many viewers I have had to devise a way of compressing data onto a chart. I have chosen here Time Reversal (a term borrowed from non-linear audio editing). The next two six-month charts of WHT & MNMM have two time scales - one forwards and one backwards. I have reflected major channel support and resistance from the beginning of November.

Points to note

1) Two intersecting trend sets are forming a rising wedge.

2) A wedge with the same upward angle of incidence has previously been resolved - to the upside - though the present wedge is subtended from a much larger base (see also the 'Anyone for Tea' chart).

3) A periodic wave seems to be propagating thru the green channel

4) This model predicts around $3.50 by the end of December if the upper wedge resistance is breached ($2.5 seems the critical level here)

Points to note

1) Two intersecting trend sets are forming rising wedges that are being easily overcome.

2) The BIG wedge (cause for concern) shown in the first figure of this article turns out to be supported by a line drawn upwards from the head of an inverse Head & Shoulders pattern - take another look at the first chart in this article - neckline is top side of green triangle.

3) The last big MNMM wedge broke down - but gently - and that was also indicated by a NORMAL Head & Shoulders pattern (see Anyone for tea (4))

4) This model predicts $8.00 minimum by the second week in January 2004 - and that is at channel support. Channel resistance seems to be nearly 2 times support.

I don't know much about teacup with handle formations save that they are supposed to be bullish - I suppose they are a kind of inverse 'big head' with right shoulder.....

All things considered - rising channels, tea-cups with handles, inverse Head & Shoulders pattern (MNMM), and of course a growing divergence between silver and the $'s true worth - the stage could be set for some spectacular gains in silver.

Disclaimer - I own MNMM & WHT.

 

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18 November 2003