Gammon Gold : Don’t expect a rally to end the year

Oct 20th, 2010 – Comment

The descending triangle that GAM is forming doesn’t suggest that we will be seeing a rally to the end of the year.


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I believe you have been a bull on Gammon in the past. Do you think it will finish the year on a strong note? I’d appreciate your opinion.

Robert

 

Hi Robert,

Not sure when I might have been bullish on Gammon Gold Inc. (GAM TSX). I did cover the company on March 31, 2010 for Mario but at the time it was noted that there were a number of questions that had to be answered and that the stock had to hold onto support at $7.00 which it did not do.  Lets consult the charts to see what the prospects are going forward.

The three year chart depicts a company in the gold sector that was in a sell off into the early part of July 2010 when it found a bottom at $5.50. It appears that the downtrend has been broken and that GAM has reestablished support in the $7.00 range after meeting resistance at $7.75.

 

 

The six month chart illustrates the value of watching the MACD for signals of a change in momentum. In mid June the MACD indicated that the stock was about to start selling off and it did so to the $5.50 level in July. At $5.50 the MACD turned as buying strength returned to GAM. There was also an indication of a change in momentum generated by the RSI which point to an oversold condition at the same time. The descending triangle that GAM is forming doesn’t suggest that we will be seeing a rally to the end of the year.

GAM is not a buy an hold stock but its has been very generous to investors who were able to manage the volatility and find opportunities to get on and off the ride with a profit.The better than 40%  profit on the trade from $5.50 to $7.75 in a four month period is not something to ignore but its only for those who have the skills needed to read the signals and profit from their knowledge.

In an effort to help investors improve their use of technical analysis the Oakville, Ontario Chapter of the Canadian Society of Technical Analyst will be holding a seminar on November 10, 2010 from 7-9 pm. The sessions are free and all are welcome. If you are interested please send me an email and I will get you an invitation and registration information.

Happy Capitalism!

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