Can the Pincher Predict Barrick Gold's Bounce Point?

Andrew Klips |

There’s an avid group of technical traders that follow what is called a PPO/ADX “pinch,” a bottom formation that is generally considered to mark a point for a technical bounce because the chart is in an advanced oversold condition.  From a wider perspective, the second pinch often signals a time for a larger bounce or even an overall reversal in the downtrend of the chart, especially if the PPO (Percentage Price Oscillator) is trending back upward.

Notice the alignment of the PPO and ADX in relation to the value of the Dow Jones Industrial Average during the height of the market collapse in 2008 and 2009. The chart bounced from around 8,200 up to about 9,600 on the first pinch late in October 2008 before riding to lows in March 2009 – when the second pinch formed. Of course, the markets have been rising since.

At that time, the charts for hundreds of companies were forming “pinches,” so it would have been easy to pick any number of charts at that time to reinforce the point of a second pinch being somewhat predictive of a bottom. Market sentiment and a broad rally as the recession ended certainly had a lot to do with bottom bounces.

Instead, let’s move away from the recession time frame and take a look at industry behemoth Google, Inc. (GOOG) to see if the pinch pointed to an area of reversal.

 

The GOOG chart is from 2011 as the price was fighting to climb to new highs and break through $630. There were actually a few pinches at the beginning part of the year, but the PPO was trending downward each time. Not until the April pinch was followed by a second in late June was the PPO trending upward, a key metric by pincher players’ rules in identifying when a larger move should come.

It certainly did, with the stock price moving from $473 to $630 in a matter of weeks. Ultimately, shares pulled back again, but never reached the low of the second pinch again. Today, shares are trading at $915.

That brings up the case of Barrick Gold Corp. (ABX) , the world’s biggest gold miner. The chart shows a new low being made this month as the second pinch forms and the PPO trends upward.

 

As was the case with the Dow and Google, the 50 day moving average (the blue line) was acting as resistance with the price per share struggling to ever move – nonetheless hold – above it. But, if what lovers of the pinch say is right, the chart should be in for a significant bounce or even overall reversal.

Now, this is only a technical look. Every trader knows the old adage “news trumps all.” Gold is still limping along with experts varying in their forecasts about where it’s headed, according to Equities.com writer Michael Teague. Barrick has some fundamental issues that it is dealing with by cutting staff in the wake of slumping share value and gold prices. The company’s $7.3-billion acquisition of copper mine owner Equinox Minerals in 2011 didn’t exactly pan out as planned either as prices for the industrial red metal have fallen.

Fundamentals aside, the stock price has climbed about 20 percent above lows this month, lending to the idea that the pincher formation may once again prove its salt, but then again, nothing is foolproof.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ABX Barrick Gold Corporation 15.66 0.64 4.26 19,261,412
GOOG Alphabet Inc. 750.50 2.58 0.34 1,452,484
PYPTF Paypoint Plc Ord 14.11 0.00 0.00 0

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