Sprott Resource Corp. caught in an aggressive sell-off

Aug 21st, 2013 – 1 Comment

Currently sellers are in control of the market and until they get washed out it would be best advised to be cautious.


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SCP LOGO

Hi Lou,

I was wondering what your take is on Sprott Resource and if the dividend is sustainable.
I appreciate your time.
Shirley

 

Hey Shirley,

 

Thanks for the assignment. Sprott Resource Corp. (SCP TSX) owns assets in the natural resource sector including gold bullion. Unfortunately the company has experienced some selling  pressure as commodity prices have fallen. The shares have sold off since mid April of 2013 as they hit a 52-week high of $4.85. In December of 2012 management announced that a monthly dividend would be paid that was at least 0.833% of book value. The monthly distribution fluctuates with the value of equity attributable to shareholders. The current yield on the dividend is 14.78% which has to put a warning flag on the track.

A study of the charts will better inform my take on the stock.

 

SCP

The three-year chart illustrates a stock that got a nice lift as we came into 2013 but lost traction in the spring and has been in a steep decline ever since. A death cross surfaced in June of 2013 which was followed by breaks below support at $3.60 and then at $3.40.

 

 

 

 

 

SCP2

The six-month chart has a number of patterns worth examining. The selling that came in off the 52-week high in April gave rise to a breach of the 50-day moving average followed by a break below support along the 200-day moving average in  May. The MACD generated a sell signal as we came into August which was followed by a more severe decline as support at $3.40 failed to hold. Currently sellers are in control of the market and until they get washed out it would be best advised to be cautious.

Eric Sprott has recently called for gold hitting $2,400 an ounce within a year. Which would help his situation not only with SCP but also with other parts of his resource empire as well. However keep in mind that the trend is your friend until it ends and right now the trend is down.

Make it a profitable day and happy capitalism!

 

 

Categories: Natural Resources
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