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Bullish Sentiment Surrounds Underperforming Kinross Gold

A change of heart from any KGC bulls could worsen the shares' year-long slide

by 4/17/2012 12:30:00 PM
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With the recent weakness in gold prices, it shouldn't be too surprising to see that Kinross Gold Corporation (KGC - 9.61) hasn't fared so well on the charts. Since the beginning of the year, the stock has lost 17.7%, and has recoiled about 38.4% over the past 52 weeks. On a relative-strength basis, the stock has underperformed the broader S&P 500 Index (SPX) by nearly 15% during the past two months. In today's session, KGC is up about 2.5%, but is staring up at the $10 mark -- a former layer if support that could switch roles to act as resistance.


Despite this lackluster price action, the options pits appear to be loaded with optimism toward KGC. During the past 10 sessions, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 20.62 calls for every put. This call-heavy ratio arrives in the 85th percentile of its annual range, suggesting that traders on these exchanges have purchased bullish bets over bearish at an accelerated clip during the past couple of weeks.

On the other hand, this activity may not be quite as bullish as it would first appear. Short interest on the equity jumped 10.5% during most recent reporting period. With buy-to-open call volume and short interest rising in tandem, it's possible that short sellers are picking up optimistic options to hedge their pessimistic positions.

On the sentiment front, KGC could be prone to downgrades and/or price-target cuts, should the shares continue to tumble. There are nine "strong buys" and one "buy" endorsement from analysts, versus seven "holds" and not a single "sell" suggestion. Plus, Thomson Reuters places the average 12-month price target at $14.93, which signifies a sizable 59% premium to KGC's Monday close at $9.38.

In light of all the positivity surrounding this laggard, an unwinding of bullish sentiment among analysts or speculators could prompt additional selling pressure going forward.


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