Durban Deep Leads the Way Into 2002

Durban Deep has not disappointed the faithful investor, soaring from its $1.10 pivot last week to close near a two-month high at $1.35. Trading volume on Friday's big session was heavy - and as evidenced by the tick chart, most of that volume was accumulation.

Durban (symbol DROOY) has established two unbroken lines of demand with a steady upward slope well into 2002 and a series of rising cycle channels that project to much higher prices over the next several months. Durban Deep has now officially absorbed all excess supply and is poised for a powerful bull market in 2002, much as we have predicted this year.

We noted back in November that by far the most attractive outlook belonged to Durban. At the time Durban was trading at $1.12 when we wrote, "Durban's cycle channels support a move to as high as $1.50-$1.60.This would represent quite a jump on a percentage basis." Indeed it would, as Durban proceeded to climb steeply last week. Considering the volatile nature of the gold stock market, not to mention the risks inherent in a low-priced equity, that's not a bad return in a short period.

Notice the 10-day tick chart we have provided for DROOY. Although it isn't shown, there are at least three rising cycle channels that project above $1.45 in coming days/weeks and even further above early next year. The daily chart for Durban shows two steadily-rising lines of demand (also known as trend lines). These lines of demand show how buyers have managed to absorb every major line of supply that has come onto the tape in the past six months, and as of yesterday (Friday's) trading session the last significant line of supply for the year was taken out! A crossing above $1.40 psychological resistance is a mere formality as it no longer represents any formidable selling pressure. The weeks ahead will be bullish for Durban Deep.

Now look at Durban's one-year daily chart that we've provided, including its 20-day and 40-day moving averages (which reflect the dominant and sub-dominant short-term trading cycles for DROOY). Notice how Friday's high-volume spike in price broke above both moving averages and how both are now starting to turn up, sending a buy signal. This implies the short-term cycle has bottomed and will be up into the New Year. This also establishes yet another upward-sloping line of demand from which buyers will be able to better capitalize in coming weeks.

We observed previously, "The trading pattern on Durban's one-year chart is designed, in our opinion, to deceive traders into avoiding long commitments to DROOY so that insiders can accumulate as much of the float as possible in a short period of time. This pattern qualifies as a classic "head fake" due to the fact that a broadening-type pattern has formed between September and October. A conspicuous spike in trading volume back in mid-September is equally deceptive and is a way that insiders "paint the tape" to make it look like there is net selling when in reality accumulation is taking place. The volume was carefully placed by insiders and professionals and you have to look at the actual tape in order to see what is really taking place. It doesn't show up on the daily and weekly bar charts." This observation is still true and is worth repeating.

Gold futures continue trading in a lateral range of consolidation and will continue to do so for the next several weeks until the critical moment arrives in 2002. Once gold finally closes above benchmark resistance (final line of supply) at $325, the "moment" will finally have arrived, but this will take some time to effect. For now we must be content to wait patiently, and gradually accumulate the yellow metal at these low prices along with the commercial and banking interests (the "smart money").

February 2002 Gold Futures on the Comex are trapped in a zone of consolidation between $272-$284. Looking at the daily chart for gold, four lines of overhead supply are plainly visible and these will act to keep gold from mounting any meaningful rallies in the weeks ahead. At the same time, however, several points of demand (i.e., "support") are currently bolstering the market and preventing any serious sell-off from occurring, which shows the insiders have complete control over the gold market right now. We do not expect gold to move below $270-$272 at this point, as this will likely mark the bottom of the trading range. What we do expect is more of the same: listless fluctuations within a narrow trading range, punctuated by occasional rallies, over the next few weeks while insiders accumulate more gold at bargain prices. Accumulation campaigns (which are preparatory for major bull swings) always take time to effect, the longer the wait the higher the climb.

Looking at gold's long-term monthly chart yields many valuable insights as to the "big picture" in the metal's supply and demand outlook. As we have asserted many times since last year, gold has definitely posted its bottom for the latest K-wave cycle, a bottom which will not be broken (@ $250). Adding strength to this is the fact that a double bottom was produced on the chart earlier this year on extremely high volume. This double bottom-with the second bottom occurring at a slightly higher level than the first-is a strong technical indication that gold is indeed on a good footing and that its bull market is definitely forthcoming.

What we expect to see next is the appearance of another slide in gold's price which will have the effect of scaring the investment advisors into going bearish on gold once again, and advising their clients and subscribes to sell gold. This would mark the psychological bottom of the final test of gold's lows and would signify the start of gold's big upswing. What is important for us to note right now is that the cycle channels on the gold charts show a strong and seemingly unbreakable series of bottom supports around $270 (give or take a few dollars) and the channels-while still mostly sideways with a slight downward slope along some areas-will gradually start to turn up early next year and by the middle of next year we would expect the all-important $325 resistance to have been taken out. From there the "sky's the limit." Overall, the year 2002 should be one of incredible strength and upside momentum for gold, although the first quarter of the year could be rather slow going. While the first quarter should be nondescript for gold, the second quarter should be a good one, and by the third quarter there should be strong and momentous upside movement underway. We'll know more as we approach the new year.