Hi Lou,

Look at the volume on CUM and the slide in the stock price. There seems to be another round of insider selling. What do you think of this stock?

Thanks,

Judi

Hey Judi,

Thanks for the assignment. Copper Mountain Mining Corp. (CUM TSX) had a great run as it developed its deposit and built their mine in Southern British Columbia. I think what you are seeing is a typical investor response to an organization having met some of their objectives. Investors take profits when they think that all the currently available good news is already baked into the stock price. There are a number of factors to consider when examining the case for CUM, not the least of which is the price of copper itself. A review of the charts will highlight some of the details that you should consider going forward.

The one-year chart for copper provides some of the answers as to why the stock has sold off. As goes copper so goes CUM. The price of the commodity hit resistance at $4.50 in July of 2011 and then broke support in August. There has been some recovery in the price of copper as it bounced off of $3.00 in October. The three-month up move seems to have met resistance against the 200 day moving average and the RSI and MACD are both suggesting a pullback from these levels.

The three-year chart for CUM outlines the resistance at $8.00 the shares tested but could not break above in the spring and summer of 2011. The MACD generated a sell signal in early July that saw the stock fall back to the October low of $3.24. A comparison of the chart for copper provides ample evidence of how the shares and the commodity move in lockstep. The stock caught a bounce off of the lows and enjoyed a nice advance until it met resistance against the 200 day moving average.

The MACD on the six-month chart has generated some great buy and sell signals for traders. Make sure to consult this indicator when making decisions on the stock. The MACD  currently looks to be turning up and the shares appear to be holding support along the 50 day moving average.

The 2012 plan for CUM is to ramp up production to between 85 and 90 million pounds of copper. The estimates are that at target production levels the mine will be operating for about 17 years. I like the story but what is needed is a convincing move to the upside. If the shares can make a move through $6.00 it has little resistance back to $8.00.

Make it a profitable day and happy capitalism!

Hello Lou,

 Could we have your thoughts on Teck Resources Tck.b over the next year.

Thank you.
Doug

Hi Doug,

I last undertook an analysis of  Teck Resources Ltd. (TCK.B TSX) on December 17, 2010 for Gerald. At that time there were no indications that the stock would breach its trend line but it was advised to take some money off the table and book profits. On January 12, 2011 the stock reached a 52 week high of $64.62 and then started to retreat.

A review of the charts will contribute to our understanding of where TCK.B has been and where it might be going.

The three year chart indicates that the shares have been in a sustained sell off since the early part of the year. What is evident is that the uptrend that took the stock from the low thirties in the summer of 2010 to the highs in mid January of 2011 was breached within days of reaching the top. A death crossed surfaced in early June of 2011 when the shares traded at $50.00. A death cross, when the 50 day moving average crosses below the 200 day moving average, is a signal that should not be ignored. Basically it confirms that selling has gripped the stock and if you hadn’t thought of bailing out earlier it would be prudent to do so immediately. 

The six month chart depicts a series of lower highs and lower lows which is never a good time to get on a ride. Another feature worth noting is that the stock has not been able to hold onto support at $50.00, $44.00, or $38.00. In addition the MACD has generated accurate buy and sell signals through the period. Currently it is indicating continued weakness.

Given the current down trend and the death cross on the chart if you are looking to buy now it would be prudent to wait. Eventually TCK.B will find a bottom and reverse this trend. If you own the stock the next level of support comes in at 30.00 and below that at $25.00. TCK.B needs an expanding global economy to stoke demand for its resources. Unfortunately growth forecasts are being revised lower taking this stock with it.

Make it a profitable day and happy capitalism!

Hi Lou ,

 I’ ll be brief…I would appreciate getting your current opinion on Rio Tinto. Considering a current P/E of 8.4 in addition to the size of the company, isn’t it time to buy ?

Thanks,

Robert

Hi Robert,

Thanks for the assignment. Rio Tinto PLC (RIO NYSE) is a global mining giant with interest in iron ore, bauxite, alumina, aluminium, copper, diamonds, coal, uranium, and a host of other resources. In 2007  the company bought Alcan for $38.1 billion and had to strap on lots of debt to get the deal done.

 One of the things that I like about RIO is that they continue to dig for new efficiencies in their operations. Their development of HIsmelt technology to improve the economics of processing iron ore fines is just one example of their focus on continuous improvement. The iron ore group contributes 68% of the operating cash flow of the company. The forecast is for continued tight supply against existing demand for the ferrous metal.

Here’s the rub. RIO is an economically sensitive stock. It rocks when global growth is on an uptrend and suffers when growth slows. The price earnings ratio for the stock is low relative to its historical trend and also below the price earnings ratio for the basic materials sector. The question is does the price earnings ratio indicate value or a value trap?

The charts will provide a sketch of the prospects for the stock.

The three year chart tells the tale of a stock that had been treading water for the last ten months.  A range bound pattern was established with support at $65.00 and resistance at $72.50. Profitable for traders not so much for buy and hold investors.

When I look at the time frame it brings back a conversation I had with my pal Darryl Simsovic from Item Corporation.In  November of 2010 we were discussing the Fed decision to pump another $680 billion into the economy through their second round of quantitative easing. At that point it was clear that all the previous efforts to spur growth in the US had not met the policy objectives. The evidence suggested that the global economy was being fed by monetary stimulus and there was insufficient real organic growth. The conclusion I came to was that we were running on fumes and that companies that depend on the health of the economy could not move higher without real demand.

The six month chart defines the support at $65.00 which was breached in August as investors got spooked by a multitude of factors. These include the debt ceiling debacle, the sovereign debt issues in Europe, and S&P’s rating cut on U.S. debt. The RSI and MACD are both currently turning lower so the bounce off of $52.00 will need some great effort to be sustained.

With a death cross on the chart, the momentum indicators turning lower, and investors in a selling mood I think that caution would be the better part of valor.

Make it a profitable day and happy capitalism!

Hi Lou,

Royal Nickel has been on a downward trend for a while. Is it time to jump in or wait longer? They have a very experienced management team and supposedly a world class asset.

Thanks,

Brendon

Hey Brendon,

Royal Nickel Corp. (RNX TSX) does seem to have, as you suggest, a huge nickel deposit in Quebec. The 100% owned Dumont Nickel Project is forecast to produce four percent of global output by 2016. The mine is expected cost $2.3 billion and produce 140 million pounds of nickel per year over the twenty five year projected mine life. Pay back on the investment is estimated in just over four years.

The management team is stacked and packed with former Inco Ltd. hands which provides some comfort to investors. What we have to keep in mind is that no one controls the price of the commodity, not even the most experienced manager. The global nickel complex is expecting new supply coming to market as mines that have been in development start to ramp up. In addition there is the nickel pig iron issue that could put pressure on refined nickel prices.

The charts will provide some guidance as to direction, support, and resistance.

The one year chart indicates that the shares of RNX first came to market in December of 2010 after their initial public offering. After an initial surge of enthusiasm the stock has been selling off aggressively. There is an established downtrend line and consistent resistance along the 50 day moving average.

The six month chart provides a closeup of the recent trading action. What is noticeable  is that the MACD has provided some strong buy and sell signals for profitable trades. At this point the best case scenario would be a retest of the lows at $1.00. that could wash out the sellers. Neither the MACD nor the RSI are currently generating a buy signal and the volume has been thin over the last sixteen session.

With a downtrend established, resistance along the 50 day moving average, no indications of a shift in momentum towards buying, and thin volume  now is not the time to be chasing RNX. Maintain your surveillance and look for a turn if the shares bounce off $1.00

Hi Mr. Schizas,

I bought FNX on March 23 and the stock has dropped. Can you give me any advice.

Thank you,

May

Hi May,

You bought the shares of FNX Mining Company on the day that it was announced that they would be merging with Quadra Mining Limited to form a new company called QuadraFNX (QUX TSX). The combined company is now positioned as a mid tier copper producer with a mix of open pit and underground operations.  However what I think might have gotten missed in your analysis is the health of the underlying commodity. Lets get out the charts and see what might be lying ahead.

The chart for copper gives us the tale of the tape on where a mid tier copper producer might be going. As a general rule if I buying a car company I want to find some measure of the health of that market. If I am buying a pharmaceutical company, again I want to find a reasonable proxy to help determine if the road will take me where I want to go. With commodity based investments the resources itself provides all the information you might need.

The three year chart for copper shows a commodity that recovered from the lows but has now broken to the downside. A mid tier copper producer can not go up if copper is going down.

The three year chart for QUX is almost identical. The stock had a great run from a rock bottom and then flattened out and is currently giving up ground. The retreat has nothing to do with the merger. It has everything to do with price of copper which is the underlying asset.

The six month chart illustrates the sell off that started in late April as copper prices started to head lower. For resource based investments the price of the commodity is like the yoke of an aircraft. If the yoke is pushed forward the plane heads lower, if its pulled back the aircraft climbs.

Since late April it looks like the yoke had been pushed forward taking the commodity and the stock lower. There is also a seasonal effect in play. According to seasonality expert Brooke Thackray mining stocks enjoy a period of strength from mid November to early May.

It appears that there is some support at $11.50. But with a death cross starting to form and the sector not enjoying the summer and early fall on a seasonal basis it might be wise to consider cutting your losses and preserving capital for a re-approach later in the year.

Happy Capitalism!

Good Morning Lou,

I have a question about First Quantum (FM.T)and copper price. What is the impact of Congo’s political issue on the stock price? If China’s housing market loses strength will copper price come down? Do you think it can merge with a bigger company? Is there a better entry price?

Thanks
Smita

Hi Smita,

You have posed a number of good questions touching  the trading value of copper and by the nature of their business First Quantum Minerals Ltd. ( FM TSX).  As a general rule the political stability of the  countries where a company operates will influence the  company’s share price. Similarly the global demand for a commodity will be influenced by a number of factors including a potential slowdown in the housing sector in China and a potential merger.

Having said all that its good that we have one good indicator that incorporates all those factors and thats the price of the stock!

In technical analysis we say that in the price there is much knowledge. What that means is that the market has already priced in all the information and speculation floating in the data sphere and come up with a value for the asset. If you accept the premise then what we need to do is evaluate how the price of the asset is behaving.

The three year chart tells us that the stock made a huge advance from the December 2008 lows but that advance has taken a breather. FM hit a high at $100 in January of 2010 and then pulled back, falling below the 50 day moving average and then catching a bounce off the 200 day moving average.

What we can deduce from the price action is that the uptrend is broken and investors have been taking some of their money off the table. The bounce off the 200 day moving average ran to a lower high of $92.50 in late March and has pulled back testing support on the 200 day moving average once again.

The six month chart provides a closer look of the recent price action in the shares of FM. The MACD proved a good signal generator for the advances and declines in FM. Currently the MACD is not suggesting that the stock is about to catch another bounce. However the last candlestick on this chart is a doji called  a hammer which signals a trend reversal to the upside.

If you have an appetite for risk you could jump on now and see if you catch a lift. On the other hand if you are risk averse you would want to see FM move through resistance at 82.50 and see if you can ride it back to $92.50.

Happy Capitalism!

I am thinking of switching out of BCE to AA-NYSE.

Totally different investments, but seasonality may say now is the time to get long AA.

What does the Master think?

Cheers,

Steve

Hi Steve,

 Alcoa ( AA NYSE ) is part of the materials sector and according to Brooke Thackray’s  “2010 Investors Guide : How to Profit from Seasonal Market Trends” the sector enjoys a period of strength from late  January to late April. Full disclosure, Brooke and I are both participants in the Oakville Chapter of the Canadian Society of Technical Analyst and I have a lot of respect for his work.

The thing that Brooke will tell you is that seasonal influences are not a guarantee. There is always a probability that a seasonal trend will not emerge. That being said lets look at the three year chart and get a view of trend, support, and resistance.

What I see in the chart is that the uptrend on AA has been broken and that the stock is now testing support in its 200 day moving average. What you need to make this trade work is to make sure you protect the down side. If we don’t get a bounce off these levels we could retrace back to $10.00 where we find the next level of support.

The six month chart gives a close up of the current trading in AA. I have added the fast stochastic indicator to this study to see if it adds to a case for a buy. The MACD seems to be flattening out and making a bit of a turn upward suggesting a bounce is developing. The fast stochastic is doing much the same but neither has made the turn yet. What I also see is a small double bottom off support which is a reversal pattern indicating that the selling that started in the middle of January could be coming to an end.

A seasonal uptrend in the sector, with the MACD and fast stochastic flattening out, and a double bottom off support make for a trade with upside potential. If you enter at this point look for resistance at $14.50.

MAKE IT A HUGE FEBRUARY AND HAPPY CAPITALISM!

Hi Lou

I asked you to look at MSQ about 2 years ago. I managed to make some dough in the past. Can you please look at it again.

Thanks

Lou

Hi Lou,

Always good to hear from you. Mosquito Consolidated Gold Mines ( MSQ TSXV) should really look at a name change given that their focus is on their monster molybdenum project located about 35 miles from Boise, Idaho. Company management intends to move to a bankable feasibility study for the CUMO project in 2010 which provides a flex point that will either move the stock higher or knock it off the uptrend.

The three year chart provides a view of the sharp V bottom that lifted MSQ off the lows in late 2008. There is also a golden cross that formed in July of 2009 at $0.40, indicating a continuation of the uptrend. If you look at the recent trading pattern its clear that there is been buying coming into the stock in 2010 but there is resistance in the $1.60 -$1.70 range.

The six month chart provides a closer look at how MSQ is positioned for 2010. The MACD signalled the retreat in October and the advance in December and now seems to be turning down again. What I observe is that the stock has gotten ahead of its support and could be moving back towards the 50 day moving average.

The fundamental story is about moving a significant deposit in terms of size, albeit low grade, towards financing an econ!omic mine. MSQ has other deposits in its portfolio but at this stage it looks like CUMO is the project that will leverage corporate success.

If there is a rub in the MSQ story is that the company has been hacking away at projects for over 20 years without a major breakthrough. That having been said it is often the case in business that an over night success comes after 20 years of plugging away.

Happy Capitalism!

This company has two operating mines, Minto and Cozamin –very good cash flow, a strong balance sheet and a further project it has completed feasibility on —it is primary copper with gold by-product—yet it has not moved with the recent prices of these metals—it also has a toe-hold in Nevada Copper that appears to have outstanding potential

What am I missing here?

Joe

HI Joe,

Thanks for the assignment. I love a head scratcher myself!

Capstone Mining Corp. ( CS TSX)  has as you mentioned two operating copper mines. The Cozamin Mine in Mexico and the Minto Mine in the Yukon. They are also developing a Kutcho deposit in British Columbia and they have an investment in Nevada Copper which is developing the deposit at Pumpkin Hollow. So whats the rub?

If you go through the corporate information on the website for CS you will find that they ran into some operating problems in the third quarter that have needed attention. In addition the forecast for 2010 cash cost per pound of copper has risen to between $1.10 to $1.20.

Finally you would have to expect that some investors decided to take some money off the table given the rise in the stock in 2009.  These are the factors that have taken some of the excitement out of the stock over the last four months.

The three year chart provides a good view of the sideways pattern on CS since Q3 but also the significant advance from $0.75

The six month chart provides a clear view of the range bound pattern since August with resistance at $3.15 and support at $2.70. There appears to be some resistance along the 50 day moving average since December.

Capstone has been very generous to investors who got on the ride in early 2009. If management can deliver on its strategy of organic growth through resource and reserve expansion via the drill bit at Minto and Cozamin and find some attractive takeover targets 2010 might be a good year. But as my friends in the mining game always remind me its easier to take a stock from $0.75 to $3.00 than from $3.00 to $12.00.

Happy capitalism!

Lou,

Do you have any thoughts on Far West Mining…they have a copper deposit in Chile and some drilling going on in Australia.

Thanks,

Dave

Hi Dave,

The most frequently asked question in my investment universe is do you have any thoughts on this company or what do you know about that company. To be honest with you at the moment the question is asked the answer is no I don’t currently have any thoughts nor do I know anything about the company in question.

But having posed the question leads to an investigative and evaluative process that has me asking lots of questions, gathering information, and coming up with an answer to the single most important question you need to ask when looking at a stock. Does the potential reward justify the risk?

Far West Mining Ltd. ( FWM TSX) is focused on their Santo Domingo copper, iron project in chile. The project is forecast to have a 20+ year mine life and management says that production is possible in 2012/2013. The operative term to my mind is ” possible”.

Its not approaching zero, its zero.

Its possible that I could date Cindy Crawford in the next three years but the probability of that happening is zero. Its not approaching zero, its zero.

The question that has to be answered in the case of  FWM is what is the probability of getting into production at Santo Domingo within the next three years? Quadra Mining Ltd. ( QUA TSX) has stepped up to the plate with $10m in a recently closed private placement. The deal was priced at $2.04 a unit consisting of one common share and a full share warrant with a strike price of $2.75 good for the next 24 months.

The three year chart provides a view of the advance that FWM has enjoyed in 2009. The driver behind the gains was a series of reports expanding the resource base at Santo Domingo that took the stock to $2.00. The announcement of the Quadra deal in mid October set the stage for the next leg up.

The three month chart provides a look at the resistance at $3.80 and the MACD turning lower indicating that the upside momentum was losing steam.

The concern that I have with FWM is the thin trading volume. Yesterday it traded 2,000 shares. As Spinal Tap would say their audience is selective.

The five year chart for copper shows an aggressive recovery from the lows and some resistance at $3.00. The strength of copper will contribute to the upside for FWM.

A pull back in the shares of FWM to $3.00 would be a reasonable entry point for a stock with potential  but trading on thin volume.

Happy Capitalism!