Agnico-Eagle Mines Ltd. (AEM)
(7/2/07)

With the XAU and HUI indexes putting in what looks like tradable lows, we're looking at gold shares again.  If we're right, we're likely to add some others going forward, and for now are leading off with AEM, one of the stalwarts among the Canadian mining outfits.  Besides what I think are compelling technical patterns, I even like them fundamentally; the company is sitting on tons of free cash for exploration, and has a solid portfolio of proven reserves.  They also don't hedge their forward sales price, and really don't need to, since their operating costs are relatively low and very well managed relative to the gold spot price.

Looking at the long-term wave patterns in AEM, the stock has risen in 11-waves off a 2.62 low in 1998.  Since it is in an unfinished bull pattern that exceeded 9-waves, the advance should normally then move to 13-waves.  The corrective decline from its 45.67 high of December 2006 also argues for a new impulse pattern, which we think should have started with its 33.25 low of May 30.  The stock moved to 38.48 from this low, which we label as the top of Wave 1 of (5).  For that wave count to remain viable, the 33.25 low needs to remain intact, and your may therefore want to limit your risk to about 33.  A conservative entry may await a break of 38.50 to clear the top of Wave 1;  those with more risk tolerance can use a break of 37.25.  If our outlook is correct, the stock will ultimately retrace the decline from December, and post a new high between 46-50, as suggested in the daily chart above.  Immediate overhead resistance is at 40, with 42 another key resistance level.

I suggest giving this one a little time, and for our option play, we're looking at the January 2008 $40 Call (symbol AEMAH), currently selling for $3.30 with the Delta at 0.48.  

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