Semafo Inc. has been on quite the run

Nov 10th, 2010 – Comment

Overall you don’t want to shoot this running horse but you have to be prepared for another pullback similar to the one in June which saw the stock drop from $9.00 to $7.00.


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Dear sir,

I have been in this stock since the early 8$ and have taken profits several times along the way.

My t/a says the stock looks very bullish for the immediate future but I am concerned since the recent run-ups have been consistent, with very few down days. I have not seen a stock perform this well since the tech bubble burst in 2000. This stock goes up regardless if gold goes down contrary to Barrick, Goldcorp and Kinross. I have done my DD but,somehow this stock almost appears “too good to be true”.

What am I missing concerns me somewhat and what are your thoughts on this subject?
Do you think this run up has legs and for how long? I realize you don’t have a crystal ball!

TIA and kindest regards,

Pierre

Hi Pierre,

I wish I could get my hands on a crystal ball – that works! However we do have  technical analysis which can help reduce risk and generate profits. I last reported on Semafo, Inc. (SFM TSX)  on May 12 of 2009 when it was trading below resistance at $2.25. It has certainly done well in over the last year and a half. I understand your concern about having a black swan hit your pond and cause you unexpected losses. The charts will help identify any risk to the uptrend that has been so generous.

The three year chart is as sweet as sweet could possibly be. Solid trend line with constant tests of support on the 50 day moving average. The MACD did signal the break below the 50 day moving average in June of 2010 but other than that its been an escalator to the penthouse of profit!

At present the RSI is indicating that the stock is overbought with conviction. That should come as no surprise given the rabid frenzy that has taken gold through $1,400 an ounce this week. What is noticeable is that SMF has wandered away from the 50 day moving average which suggests that it has moved too far to fast and is due for a pullback.

The six month chart illustrates the recent move and the widening gap that sits between the stock and its support on the 50 day moving average. Right now the spread is close to $3.00 whereas earlier it was more like $1.00. Again the RSI is signalling an overbought situation which can not go on forever. Trees don’t grow to the sky!

The MACD also looks to be running out of steam providing another factor to consider. Overall you don’t want to shoot this running horse but you have to be prepared for another pullback similar to the one in June which saw the stock drop from $9.00 to $7.00.

The company is scheduled to report Q3 results today which should help better define the short term trend.

Happy Capitalism!

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