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Mar 31st, 2010 – Comment

The next level of support comes in at $7.50 then at $7.00. I think that you may have to wait till the summer to get a reversal of the current trend.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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gammon

 

Hi Lou,

I’m curious about your thoughts of Gammon Gold and it’s recent decline (down about 20% in the last month).

Thanks,
Mario

 

Hi Mario,

Gammon Gold Inc. (GAM TSX) provides a classic case of a company failing to meet street forecasts and having its stock washed away in a flurry of selling. Were there signals to get off the ride earlier? You bet.

gam

The three year chart tells the story of a stock that moved higher during its period of seasonal strength that generally runs from July into October. It can start or end earlier or later but its a time frame to be aware of when investing.

As we can see the period of seasonal strength started later and ended later but there was a big move up from the $6.50 level.

 

 

gam2

The six month chart provides a number of indicators that the run was over. The first sign worth noting is that at the $13.00 high in early December of 2009 the RSI showed an overbought situation which generally means that the buyers are wildly enthusiastic about the prospects.

But as we know that level of excitement is not sustainable in any area of life including the markets. Simultaneously the the MACD was turning down generating another call to seriously examine your assumptions about the sustainability of the uptrend.

There was a bounce off the 50 day moving average in mid December which gave rise to a lower high in mid January but that was the end of the ride. Technical analyst would have noted the double top as the definitive indicator that the uptrend was broken and a reversal had developed.

GAM caught a bounce off the 200 day moving average in late January and early February but hit its head when it met resistance on the 50 day moving average and again started heading lower. By early March the stock breached support on the 200 day moving average and gave back even more ground.

The next level of support comes in at $7.50 then at $7.00. I think that you may have to wait till the summer to get a reversal of the current trend. But clearly there were lots of signs along the trail that things were getting hostile.

 

BEWARE THE FOOL! BE NOT THE FOOL ON APRIL 1st!

 

HAPPY CAPITALISM!

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