Just a quick note before I start: this analysis is based on my...

Just a quick note before I start: this analysis is based on my view that NCM is worth $45+. I mean, with cash margins at $1,000+ /oz and an operating surplus of $2B+, it really is a no-brainer for me. I think the market's over reacted to the news about the production hindrance due to the ground slip last November. This is all about whether the market will eventually realise the fundamentals, or continue slipping because it didn't like the Lihir acquisition. Perhaps I need to look into the ROE figures that buying Lihir has provided the company. Yes, the profits may have gone up, but at what additional cost to the investors? Could the money have been invested elsewhere for a higher return on the funds invested?



First of all, every man, trader and his dog are aware of the textbook-style channel forming over the last months, which I've highlighted in pink. The lower support gave way as gold continued to decline late last year, after which a few scenarios were on the cards:

• The share price could continue tumbling downwards


• The share price could retest that lower pink line from the bottom and get rejected, before tumbling back downwards


• The share price could retest that lower pink line from the bottom and break through, leading to higher prices back within the channel

None of these rather conventional scenarios eventuated! Instead of the share price 'testing' that crucial level at 33.10 (which would involve soaking up a LOT of supply as the longs who got in between $29.00 and $31.00 would scramble to take profits whilst potential new longs would be waiting for a result - making a breakthrough that much less likely) it made a clean gap up (1) past that critical level.

I was not only very happy with this, but also the subsequent price action over the last few days, even though it's been nowhere near as explosive. After that rather interesting gapping action, the share price has come back down to test that pink line again (2), perhaps as a result of profit takers and the need to 'fill the gap' and soak up any supply available. Even though I had taken a long position on the 27th (the gap day!) I was half-hoping that we'd have a testing/consolidation period back down to the pink line, as that now makes it far more bullish in the short/medium-term in my opinion.

Also, the volume seems to be declining during this consolidation period, which could mean that there is less and less supply being found at these lower levels, so we could be priming for a run up (4). It could also mean that the shorters are soaking up stray supply from any buyers en mass and we are thus priming for a move down. But judging by the price action over the last few trading sessions, I would say that this is the more unlikely scenario. The RSI is making higher highs (3), again another bullish signal. Let's see if that white trend line can hold.

If the SP had continued to rise relentlessly following the gap (I had suspected this very thing would happen, which is why I pulled the trigger that was, in hindsight, premature) I would be far less bullish as we approached higher levels for the reasons stated above. Gold has had a great week, and more consolidation could be on the cards for NCM. But again, NCM has a lot of catching up to do (click here for the chart).

NCM outperformed the wider XJO today, always a bullish sign, although the market fizzled out as investors exercise caution ahead of tonight’s US non-farm payrolls and unemployment rate data, causing NCM to close at its daily lows. As stated, if the markets continue to hold up, I'm expecting a test of the $36.00 level over the coming week or so. In the long term, I hope we can pierce that huge wall of overhead resistance (5).

TAKEN FROM MY BLOG.