If you're looking for "diamond in the rough" in today's market, check out Pan American Silver Corp. (PAAS).
PAAS is currently trading near a 52-week low, and it looks like investors have just enough time to accumulate a meaningful position before the stock rebounds -- as it's historically done whenever its technicals look like they do today. And this time around, it looks as if PAAS will likely to see the kind of "mega-rise" that it hasn't enjoyed since 2008.
Check out Pan American's 2001-2016 monthly chart:
As the chart shows, PAAS peaked in 2008, capping a seven-year uptrend that saw an extraordinary 20-fold rise in its market capitalization. But then Pan American plummeted from $39 a share to just $8 in eight months -- an 80% wipe out.
That created the most oversold condition ever seen in the stock, even worse than in early 2001, when PAAS hit its lowest price in history. And now, I believe those same technical conditions are close to occurring again.
Take a look the green-shaded area in the chart above. That shows that Pan American's price -- currently around $6 a share -- has gone all the way back to where it was during the market's 2002 decline.
PAAS last fell to the top of the green zone during Wall Street's 2008 crash, but reversed as soon as hedge funds that held overleveraged longs of the stock got blown out of the water.
Pan American's monthly stochastics also reached into the green zone during 2008 for the first time since 2000 -- and at the same time, the stock's price fell below the lower two-standard-deviation band (2SDB).
The 2SDB contains 95% of normality, and prices can't exist outside of that extreme for more than a few days. In fact, a combination of stochastics in the green zone and a price under the 2SDB is so rare for Pan American that I've highlighted each occurrence with green boxes in the chart above.
Historically, these periods all resulted in a near-immediate rally that typically took the stock up 30% to 50% -- and a stunning 350% between Pan American's 2008 low and its 2011 peak.
And today, the stock's price and stochastics have both fallen back into their oversold green zones, while a third component needed for a rally -- a price decline to below the lower 2SDB -- looks like it's close. All we need is for PAAS to drop to $4.85 a share and this "trifecta" will be in place.
The blue line at the above chart shows my projection of Pan American's price path over the next 18 to 36 months. I'm forecasting at least a rise toward the stock's 2014 high of around $15, and likely toward its 2012 peak near $21.
Adding support to these projections is the structure of Pan American's decline off of its 2008 manic peak -- a giant "ABC" pattern that's known as a "flat correction." If this pattern is recurring now, that would point to a fresh bull market that would eventually take PAAS to new all-time highs. That said, even a rally that pushes Pan American shares between their $15 and $21 resistance levels would be enough to justify buying the stock at current levels.
Other factors in Pan American's favor:
- Investor sentiment toward the metals-and-mining sector is near historically bearish extremes.
- Hedge funds are at their shortest exposure in history.
- Commercials are at their least-short exposure ever.
Add it all up and Pan American's path of least resistance in the intermediate-to-long term appears to be pointing dramatically higher.
Ideally, a short-term price break to $4.85 a share will manifest itself and allow the "rally trifecta" to form, but my calculations are flashing strong warnings not to sell the stock here. Rather, they recommend buying PAAS between $4 and $6 a share as assertively as possible to take advantage of a major upside opportunity.