Chart of the week: A classic contrarian candidate

Is Randgold back on my ‘buy’ list?

Gold mining shares have been a huge disappointment for the bulls lately as the metal price has languished. Many are saying the very recent explosive interest in bitcoin and the other cryptocurrencies has diverted attention away from gold as a hedge against possible losses in equities.

My personal view is that the motivation behind bitcoin ‘investment’ is a pure speculative ‘greater fool’ play where buyers hope they can cash out before the market tops. That is at odds with that of the majority of gold buyers. I firmly believe that gold will have its day again – and soon.

In any case, I believe we should pay renewed attention to an old friend – Randgold (RRS) – where we have taken significant trading profits in the past.

With bullish sentiment towards gold low, is this a ‘Buy Low/Sell High’ classic contrarian candidate? As always, let’s examine the chart for clues. Here is the daily.

From last December’s wave 3 low, the year has been spent in a tortuous wave 4 rally with the rally high at the £82.50 level in early September. This is my A wave high of what will be an A-B-C form to this fourth wave, with the C wave lying above the £82.50 level. Last week’s low is my best guess that the wave B low was set last week at the £66.40 level. Here is my reasoning:

I have a solid blue trendline off the August 2015 high which acts as support. The shares came down to bounce off it in November and also last week. In fact, the market overshot the line, but quickly recovered, making it a high-probability false breakdown.

And note the pink trendline joining multiple highly accurate touches on major lows. That is also a very reliable line of strong support.

So last week at the £67 area, the market met two lines of strong support and is making a strong bounce up as I write – and note the momentum divergence at last week’s low, lending support to my bullish stance.

If that is indeed my B wave low, I can look forward to a strong thrust up in a C wave to take it above the upper blue tramline in the £74 area, which becomes my first target.

And, if the shares can power through that resistance, we should be on our way to my next target at the £76 level.

Only a strong close below the £66 area would amend my very bullish stance.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.