Technical analyst Clive Maund discusses whether Deutsche Bank’s derivative book could derail the market, and he reviews precious metals and recent holdings.
A major “Sword of Damocles” overhanging global stockmarkets has been the situation with Deutsche Bank, which has a monumental derivative book and whose stock has been plunging to new lows. We have largely ignored this situation up until now, on the assumption that everyone else will until the SHTF, a strategy that has until now paid off. However, we should keep in mind that this is potentially a very dangerous situation that could dwarf the Lehman debacle and send world markets into a tailspin. That said, however, we have just seen a turnaround on stupendous record volume in DB stock on Friday, which suggests that the crisis is set to ease at least over the short to medium term, and if so world markets could rally. Mrs. Merkel and the German government have been caught in a dilemma over DB after lecturing Greece and other southern European governments about the virtues of propriety for ages they can’t very well wade in and rescue Deutsche Bank, so it looks like the bailout will have to come from an international consortium of banks, via the simple expedient of printing up another few trillion, which gets more habitual the more times you do it, and there’s always the fallback position of a coordinated international bail-in, although for obvious reasons they are unlikely to resort to this until they have implemented the cashless society. Cyprus was a trial balloon for this. In the meantime various creditors might take pity and engage in debt forgiveness. The movie Wall St 2 with Michael Douglas is recommended viewing for senior management at Deutsche Bank.
Thus it is ironic that at a time when there are a plethora of “end of the world” articles inspired by Deutsche Bank’s troubles, Deutsche Banks’s latest chart shows what looks like a convincing reversal, with a prominent bull hammer appearing last Monday, the 1st sign of a reversal, then a Double Bottom with Monday’s low on Thursday, followed by a big white candle on titanic record volume on Friday. This could be a major bottom here and the bill for bailing out Deutsche Bank can surely be pushed onto either German taxpayers or international taxpayers, or both, in time-honored fashion, perhaps with a special exemption on this occasion for the Greeks, as an exercise in diplomacy.
It’s been a good two weeks or so for our more actively traded stocks, with some notable successes, but there are some non-performers especially in the lithium sector which we will address during the coming week.
Among our successes were the following. . .
Catasys Inc. CATS:OTCBB, $0.94, which we bought at about $0.66 in July and $1.05 in August, and sold at about $1.32, after which it plunged quite quickly to about $0.75. We bought it back at about $0.77 a few days ago and it has since rebounded back up to about $0.94. If it should rally back up towards resistance at the underside of the Head-and-Shoulders top at about $1.00 again in coming days, it is thought best to take a quick profit and see what happens many traders, thinking in round numbers, will aim to get out at $1.00, so sell at $0.98 or $0.99, should we see this price. The Head-and-Shoulders top is not believed to be a final top but it is considered prudent on a quick rally back to the underside of the pattern to stand back and see what happens next.
Comstock Resources Inc. CRK:NYSE, $7.64. We did a very good trade in this, buying it at $4.11 on 12th August, and taking profits at $8.05 on September 9th. We bought it back on 25th September at about $6.94, since which time it has rebounded somewhat. However, the current pattern is regarded with suspicion, with a weak rally to a point beneath the earlier high. Considered best to TAKE OUR MODEST PROFIT HERE and stand aside and see what happens, with a view to possibly buying it back on another dip.
Eguana Technologies Inc. EGT:TSX.V; EGTYF:OTCQB, C$0.33. We did a couple of good trades in this too, buying it at about C$0.15 back in May and C$0.27 in August, and selling it at about C$0.34 on 9th September. Reviewing the chart it still looks positive overall, and appears to have been in a large consolidation pattern since its mid-May peak, and looks likely to take off higher again once its 200-day moving average, now at about C$0.20, has caught up more.
Pioneering Technology Corp. PTE:TSX.V, C$0.58. We succeeded in taking profits in this right at the recent top at about C$0.65, after buying it at about C$0.31 in June and $0.385 in August. After we sold it reacted back, then bounced but failed to make it to the highs, and on Friday it put in a rather negative looking candlestick. Overall its pattern is positive so we’ll be on the lookout for a good entry point going forward.
Select Sands Corp. SNS:TSX.V, C$0.47. We did a couple of nice trades in this, buying it at C$0.37 in August, selling it for a quick 27% profit in September, and then we bought it back at C$0.49 early last week in anticipation of a big breakout move which we duly got last Thursday when it soared 38% on big volume. This was a breakout of major importance, so no action is required here, and the stock is a repeated buy on dips.
The Cannabis/Marijuana sector has been doing really well in recent weeks, and although we bought the sector rather early and could have got better prices, our portfolio in this sector has ended up doing very well. One of these stocks that we have done well with is OrganiGram Holdings Inc. OGI:TSX.V, C$1.74, which we bought at about C$0.99 in April and C$1.04 in June C$1.04 in June and sold for C$1.64 on 20th September. We bought it back on 30th September at C$1.69, because it now looks like it is going to break out to new highs.
The big reason that the marijuana sector is doing so well appears to be that no less than eight U.S. states are voting on the legalization of cannabis on 8th November, five states for recreational use and three for medicinal use. This may turn out to be a classic “sell on the news” event, especially if we see a big run up into this date. The sector is in a powerful uptrend that looks likely to continue until 8th November, perhaps longer if the outcome of the vote is favorable
There is a lot of hypocritical humbug written about this industry. For example, a subscriber based in the UK had trouble taking profits in one cannabis stock a few days back, because a market maker had a “moral objection” with trading these stocks. Presumably this market maker would have no such dilemma with trading tobacco or defense (war) stocks. As far as the writer is concerned cannabis is a herb that, properly used, has far more beneficial properties than tobacco, especially in respect to treating various illnesses, and if that market maker has “moral problems” with trading these stocks, they should be fired on the spot for failing in their duty to trade a stock listed on the exchange it is not their place to pass moral judgment on what stocks investors trade. Those who are not comfortable trading them should perhaps take a look at one of our Cannabis stocks, Cannabix Technologies Inc. BLOZF $0.254, which is in a strong uptrend and is a company that makes a device for law enforcement to test whether drivers are “stoned.” Again, as with alcohol, the problem is not cannabis itself, the problem is its misuse.
Gold and silver stocks have continued to consolidate in recent weeks. Gold has been consolidating since early July after a sharp rise during June and looks like it is waiting for its 200-day moving average to catch up more with the price. There is important support in the $1,300-$1,310 area, and since the price has dropped down close to that it is considered a buy here.
The pattern in silver is similar and looks to be morphing into a Symmetrical Triangle. The bullish inverted hammer of Friday means that there is a good chance that it will rally during this coming week.
Gold stocks, as represented by GDX, appear to be completing an intermediate base pattern above its rising 200-day moving average, and this looks like a good point to pick up the better ones, especially now that Deutsche Bank looks like it is pulling back from the brink, thus averting for now the risk of an all-out market implosion, although here it should be pointed out that DB is certainly not the only bank in trouble. Only in the event of the entire market caving in would the sector would be likely to break down into a C-wave decline.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
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1) Clive Maund: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Catasys Inc., Comstock Resources, Select Sands, Organigram Holdings. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in the article are sponsors of Streetwise Reports: None. The companies mentioned in this article were not involved in any aspect of the article preparation. Streetwise Reports does not accept stock in exchange for its services. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
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Charts provided by Clive Maund
( Companies Mentioned: BLOZF:OTC, CATS:OTCBB, CRK:NYSE, EGT:TSX.V; EGTYF:OTCQB, OGI:TSX.V, PTE:TSX.V, SNS:TSX.V, )