A Technical Assessment of Wheaton Precious Metals

There was big news out of Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) late last week, when the company announced that it has settled a tax dispute with a Canadian agency on terms favorable to itself. What it boils down to is that foreign income on earning generated by Wheaton International will not be subject to tax in Canada, and while tax liabilities in Canada will be increased, the net impact of this should be minimal and way more than offset by the tax relief on foreign income.

Not surprisingly, Wheaton stock gapped higher on huge volume on this news, which will clearly have a long-term beneficial impact on the company. This stock action was very bullish and suggests that it will head much higher eventually, and here it is worth noting that the company is very undervalued compared to say Franco-Nevada or Royal Gold.

What about the market crash I hear you ask, and its impact if silver drops to say $10? The first point to make regarding this is that $10 is not so far below the current price at about $14.60, secondly given that the overall AISC (all in sustaining costs) for silver is about $16, it is unlikely to stay at that level for long without generating an acute supply shortage, and the third point is that we can expect Precious Metals stocks to anticipate the bottom in gold in silver if they drop further. The action in Wheaton on Friday indicates renewed strength, a strength that suggests that it will not be impacted much by any further falls in the price of silver, and furthermore that whenever silver does take off higher again, a robust bull market in Wheaton should ensue, and once the major sector bull market eventually gets going, it should perform very well indeed.

On the latest 6-month chart we can see the spectacular high volume gap up on Friday on the news, which just by itself is very bullish and portends much higher prices. Notice how this move vaulted the price above the resistance at the top of a Double Bottom base pattern. Note that the "old wives tale" about gaps having to be closed doesn't apply here, because the gap was a "breakaway" gap, and this type of gap is not normally closed and usually leads to a vigorous advance, especially when the gap is large and accompanied by heavy volume as is the case here. Notice also how the gap up move on Friday stalled out at resistance at another smaller gap, and in the vicinity of the falling 200-day moving average. While it may pause here for a little while to digest Friday's gain, the energy behind this move suggests that it is going to continue to press higher.

The long-term 14-year chart shows that Wheaton is cheap here compared to back in 2011, like most PM stocks. While it could be beaten back down by silver dropping to say $10 on a market crash, the gap higher on Friday on the biggest upside volume since 2011 makes it likely that the support shown at the $15 level will hold, and this show of strength implies that it may not drop back at all, or only by a trivial amount. The major bull market expected in this stock in due course, which will be triggered by an emerging bull market across the sector that is expected to be spectacular, will be triggered by a break out of the top of the expanding channel shown, all of which being likely to occur when the Fed (and other central banks) are pressured into wading in with emergency QE to alleviate an acute credit crisis precipitated by the market crash.

The conclusion is that Wheaton Precious Metals is a safe and solid silver investment here, one that is unlikely to be impacted much, if at all, by the market crash and any further weakness in silver resulting from this, and one has very substantial upside potential, especially when the major sector bull market gets underway. There is a large quantity of shares in issue at 444 million but this is a large company, and as we saw on Friday, this won't stop it going up.

Wheaton Precious Metals website.

Wheaton Precious Metals Corp, WPM, WPM.TSX, closed at $18.94, C$25.34 on 14th December 2018.

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