[DRD] update

DRD has been showing amazing strength as pretty much everything else sold off.  There has been no news.  Below is the prior model that was provided in the backlink.

To accompany that chart I wrote, "At this point one must rightfully worry if this was just an a-b-c and, given that no motive wave has been put in at this degree off the bottom yet, the prudent trader bails out here and then waits to see what the first retracement looks like.  Is it a-b-c back down to the $2 range?  If so then great, jump back in and set your stops just below.  But if we get 5 down from here it likely means that DRD will do a deep pullback from here, perhaps even to new lows." 




Below is the current snapshot update.  While I have the recent January high listed as blue 3, the nature of this rise - strength while there was panic everywhere else - suggests to me that something much stronger is at work here.  So it is possible that blue 3 is really only 1 of 3.  That would make blue 4 actually be 2 of 3.  We will know that this is the case if we gap up big on Monday because that gap, should it occur as the odds seem to suggest from this model, will have occurred in the 3 of 3 position.

You will notice that the market has set itself up to potentially do this by bottoming at blue 4 and then moving up seemingly impulsively and then pulling back. In other words, 1 of 3 of 3, and 2 of 3 of 3.  But there are no guarantees, only odds.  This could also turn into a 4th wave HT at this point and we are still not out of the woods that this was really only a big a-b-c bounce.  In fact, the slow and wide nature of blue 2 actually suggests that the higher degree wave is corrective although the EW rules do not mention it.  So if this is going to turn into something more powerful than a simple retracement then it will have to make up for lost time in the current wave so that the height to width ratio becomes significantly higher than it currently is.



I would be remiss if I didn't show the bigger picture as well.  Refer to the top chart.  See the impulse that bangs up against the slightly down sloping blue line?  Notice that this is exactly where I expected resistance to be?  A knock at the door of ~$2.40 and then a rejection back down to $2 is what I expected and that is almost exactly what happened.

So now it is important to remember where that down sloping line actually came from and you can see below that it is the bottom rail of a giant falling wedge.  That is why the coming week or two will be so important to new DRD shareholders.  My model says that the shares are likely ready for a 3rd of 3rd wave that will likely gap up over the lower rail and then either proceed to the top rail and then backtest the lower rail from below as is depicted in the conservative model below OR wave 3 up will explode and destroy both the top and bottom rails and then back test the top rail from above in wave 4.  The eventual first bounce target is $8 which is the level of the prior 4th but if Avi's gold model is correct then DRD will likely blow past that like it wasn't there.  I am counting on this which is why I am holding a nice position of DRD.  I also love, as stated in the past, the fact that the goal of this company is dividend payout and I think a renewed interest in relatively savvy divvy payers will arise out of the volatility that the markets are experiencing.  In other words, a return to the old ways and the old days of more conservative investing is in the cards.




I this this is a good place for a lesson on how to waste a bunch of time "doing your homework" relative to stocks.  I continue to maintain and have proven on many occasions that this sort of research is a complete and utter waste of time from an investment (gambling) perspective, certainly over the short and medium term.  Here is a post back from late 2012 on Seeking Alpha.  It is a fun read about the history of DRD and it does explain how DRD share price got up to the nosebleed valuation of $59 per share in 2002.  In short, leverage and fraud by prior asshole CEOs.  But we were past all that back in 2012 and so of course the $6 stock was a buy.

Oh, but don't worry, the author showed some fancy charts that suggested in his mind that blue skies awaited.  All he did was try to make some kind of statement out of the performance ratio between DRD and HUI.  That could have been useful if there had been a wave count in there but of course so few people use Elliott waves that no such analysis was done.  Besides, gold stuff generally goes up and down as a group so the whole analysis was kind of pointless IMO.  But the charts do impress people who are looking to understand some kind of fundamental analysis.

Bottom line is that a gap back up into the channel would be more important than any fundamental analysis you could ever do on this stock.  The one thing worth reading from the fundamental analysis, IMO, was the part about the fact that the bulk of their plant would cost multiples of the market cap back in 2012 to recreate at the time and the only reason they had control of it was because DRD has been around for a long time and it was something they managed to acquire back in the days of high share prices. At $2 their market cap is 96mn and so back then it would have been 300mn and the CEO (who is still CEO today) Niel Pretorius said it would take 2-3x the market cap of DRD back then to recreate.  So today we have a $100mn market cap company which owns an asset whose scratch build cost would be $600-$900 mn.

So they own a massive, well built productive asset which they have spent the last 12-18 months adding efficiency to and dialing it in.  By "own" I mean own outright, not "control by virtue of having taken out a loan".  If you owe money on something, the bank owns it, period.  But DRD has only 2 million in debt and 19 million in cash.  It has become a very conservative operation indeed after years of bullshit by liberal con men.  If DRD gaps up into the channel as my model anticipates, buy the first 3 wave pullback and then set your stops below the lower rail.