Hi Lou,

Would you like to check Gran Colombia Gold, GCM. Something strange is happening with this stock. I do not understand it.
Yours truly,

Jerry

 

 

Hey Jerry,

Gran Columbia Gold Corp. (GCM TSX) has been in a free fall since late 2010 which brings me to the main lesson in this post. Do not fight the tape! If a stock is going down you don’t need to understand why. You need to make a decision to get off the ride and preserve capital.

The charts will provide evidence to support a buy, sell, hold decision.

The three year chart has so many warning signs stapled onto the margins its screaming sell me! The top in December of 2010 was quickly followed by a breach of the 50 day moving average later in the month. The 50 day moving average has since provided resistance all along the decline.

The break below support at $1.60 in April was then followed by the formation of a death cross in May when the stock traded at $1.00. 

Regardless of the fundamental story, news released by the company, or hype on the bull boards you need to respect the trend. In this case the trend has been down for just over a year. If you had been  a buyer at the December 2010 top you would have lost close to 87% of your capital to this point.

The lesson to take away from this case is that holding a stock in a steep decline is a bad plan.

The six month chart isn’t very encouraging either but there does seem to be a a trade forming. The RSI is moving out of oversold territory and the MACD is turning higher. But you would have to have a huge risk appetite to be a buyer.

GCM seems to have a tiger by the tail with their Maramoto gold project in Columbia. Their forecast is that production will go from 90,000 ounces in 2011 to 510,000 ounces in 2016. However until the stock breaks this downtrend its a speculation not an investment.

Make it a profitable day and happy capitalism!

Hi Lou.,

I was looking at SMF as of late. Is that a double bottom that has formed and has the downtrend been stopped? Will it have to retest $7? They have also initiated a dividend.

Thank you,

Greg

Hey Greg,

Thanks for the assignment. This will be the third time I have examined the case for Semafo Inc. (SMF TSX). The first was on May 10, 2009 on a request from Bruce. The stock was trading for $2.16 and it was observed that the downtrend had been broken and there was more upside potential.

The second post was published on November 9, 2010 when the shares were trading at $12.45. Pierre wanted to know if there was more in the tank. It was noted that the RSI indicated the stock was overbought and that the MACD was turning down suggesting that the advance was running out of steam.

Retrospectively the first two posts signalled the beginning and the end of a great run. But what a run! Bottom to top it generated a 468 % return. Sweet!

Let’s examine the charts to see what could be in store for SMF.

The three year chart depicts the run that started in January of 2009 and the emergence of a golden cross. All the way up the stock found support along the 50 day moving average until the top in December of 2010.

At this point the downtrend that started in December 2010 has been broken and what has emerged is some base building with support at $7.00.

The six month chart illustrates the support that has been holding at $7.00. Currently the RSI is not indicating a move higher so I think you have it right when you say that it most likely will retest $7.00.

What gives me the most concern at this point is that it appears a bearish descending triangle pattern has formed. Given that the momentum indicators are not suggesting a shift towards the upside it would be prudent to wait for a resolution of the descending triangle. Finally the dividend is good but needs to be sustained and grown inorder to become a factor. The market sold off on the November 8, 2011 announcement. 

Make it a profitable day and happy capitalism!

Hey Lou
My question is on Lakeshore gold and if I should be buying at these prices.

Also when are you coming back to television?

Thanks,

Dan

Hey Dan,

I don’t see a return to television in my future but I have learned never to say never. I can say that I love what I have been doing for the last ten years with AM640 and teaching for the last six years at Sheridan Institute of Technology and Higher Learning. My work for globeinvestor.com over the last number of years and public speaking have also been great and have kept me very happy and busy!

The last time I ran the charts on Lake Shore Gold Corp.(LSG TSX) was on March 17, 2010 for Fred. On that day the stock closed at $2.88 and it was observed that the stock had been under some selling pressure and that it would continue to struggle. The stock gave back another 13.19%  before catching a bounce that reversed the downtrend. The advance lasted until March 03, 2011 when it hit a high of $4.42. Unfortunately its been all downhill from there.

The charts will provide further evidence to help answer your question.

The three year chart illustrates the vast destruction of value over the last eight months. There is an established downtrend and a death cross that surfaced in June of 2011. These are not generally good signs on which to start buying. In addition the MACD and RSI are not suggesting a reversal of the selling momentum that has crushed the share price.

The six month chart depicts the resistance along the 50 day moving average on every attempt to advance. Support has formed at $1.25 since October which could provide the basis for an advance but at this point there is not enough evidence of a reversal to justify the risk.

If you were to be a buyer at these levels you would be swimming against a strong tide. I would say that patience would be the better part of valor. The best case scenario would be for a new uptrend to develop and then you could catch a ride.

Warren Buffett has made a fortune getting in late when a good part of the risk has been removed and getting out early. Calling an absolute bottom or a top is not an easy task. Letting a rising tide lift your boat  is a better bet.

Make it a profitable day and happy capitalism!

Lou,

Do you see any chance of a reversal in this beaten down stock. They are getting close to 2,000,000 ozs. of gold production. The market seems to care less.

Thanks

Tom

Hey Tom,

This will be the fourth time I have examined the case for Kinross Gold Corp. (K TSX) since July12, 2010. What has been consistent with the stock is that it has been in a long decline since November of 2009 when it traded at close to $24.00. Over the last two years the shares have offered some opportunities to trade for profit but a buy and hold strategy has proven a disappointment. 

The last time I ran the charts was on April 25, 2011 on an assignment for Allan. The stock was trading at $14.63 and it was advised that investors needed to proceed with caution. Sadly the shares were not able to hold on to those levels. Even as the company reported better than expected Q3 results on November 02, 2100 it did not stop the retreat.

Another look under the hood will provide a better understanding as to why this gold producer has failed to reverse the selling on a sustained basis.

The three year chart clearly illustrates the down channel the stock has been in over the last two years. When I see a chart like this it reminds me of the two rails of ladder suspended from the upper left to the lower right. In this scenario the bottom rail of the ladder provides support while the upper rail resists the advance. Great for traders not so great for less active investors.

The MACD and the RSI are both signalling that there is more selling yet to come. The 50 day moving average has once again crossed below the 200 day moving average putting another caution flag on the track. At this point it appears we may have to retest $12.00 where long term support comes in.

You asked if it is possible to reverse this trend and the answer is yes it is possible but we will have to see if $12.00 is the rock bottom.

Make it a profitable day and happy capitalism!

Aura Minerals has been hit with a lot of problems as of late. Is it a strong enough company to survive and make a comeback ?

With thanks,

Stew

Hi Stew,

This will be the third time I have run the charts for Aura Minerals Inc. (ORA TSX). The first was on April 13, 2011 when the shares were trading at $2.53. It was advised that the stock could catch a bounce off of a double bottom which it did creating a nice trading profit but not a sustain advance. The second time was on June 29, 2011 when the stock was trading for $1.89 and it was noted that ORA was struggling to hold onto support. Unfortunately the shares continued to decline.

Another review of the charts will provide some guidance as to the go forward proposition for ORA.

The three year chart tells the tale of  declining asset value that started in March of 2011 as the shares failed to hold support at $3.50. Prior to the breach of support a death cross formed in February signaling that selling momentum was building up a head of steam. What you should also note is that every attempt to advance has been met with resistance along the downtrend line.

The MACD has proven a reliable indicator on the six month chart. It generated  a sell signal in September at $2.20 and a buy in October at $1.10. Currently the RSI and the MACD are trending higher suggesting a further lift off support at $1.10.

ORA has been a real grist mill for investors who adhere to a buy and hold philosophy. Traders on the other hand have had opportunities to score on the extreme swings. What is also visible on the chart is a double bottom which would suggest that the bounce off $1.10 has more to give.

The shares of ORA traded for a high of $10.00 back in 2008 and the company actually produces gold although at a fairly steep cash cost per ounce. In their Q3 report released on November 14, 2011 the company reported holding $20.6 million in cash. That should give the new CEO a cushion to work through some of the challenges that have surfaced. The lower resource estimate reported on November 10, 2011 is already baked into the mix so we might just be at a point where all the bad news is out.

ORA is not a buy and hold stock but it does look like there is a trade setting up.

Make it a profitable day and happy capitalism!

 

Hi Lou!

I always enjoy your column (though I live in fear of finding that I own a stock you say is headed for the depths…)

Here’s a slightly-scary one that I’m curious about – CPN – Carpathian Gold. It has been rollercoasterish, though Barrick Gold has bought a 9% share in the company. What do you think?

Thanks for any insight,

              Jocelyn

Hi Jocelyn,

Thanks for your kind words but please keep in mind that my analysis provides a snapshot of what is in the mix for a stock. I get more right than wrong but I never get them all right on the downside or the upside. I depend on investors to conduct their own due diligence to ensure that the shares of a company meet their individual risk profile.

 Carpathian Gold Inc. ( CPN TSX) is developing gold deposits in Brazil and Romania. The RDM project in Brazil is under construction and is expected to begin production between late 2012 and early 2013. The RVP development in Romania is expected to start production in 2016. The goal of management is to transition the company into an intermediate producer with annual output of over 400,000 ounces of gold per year. The current estimate is for a 20 year mine life. 

As you mentioned Barrick’s 9% stake in the company adds some weight that has to be considered in the evaluation. The charts will provide additional factors to adjudicate.

The three year chart tells the tale of a stock that has been giving investors fits over the last couple of weeks as it backed off the highs at $0.72 and retreated all the way back to $0.45 before catching a bounce back to $0.52. Needless to say this is not a stock for widows and orphans. It is a junior exploration company transitioning towards its goal of becoming an intermediate producer. You have to expect it to test every single nerve you have left!

The six month chart illustrates the signals generated by the RSI and the MACD that a sell off was beginning in mid September of 2011. The stock caught a bounce off support at $0.45 and is currently clawing its way back toward $0.60 which is the lower support level of the uptrend that it was riding before the selling dragged it down.

CPN is a speculative investment and has to be treated as such. But given that the case for gold remains solid, company management  is steadily moving its projects from exploration to production, and the momentum indicators are turning higher, the case for an investment is not without merit.

Make it a bountiful Thanksgiving with your loved ones and happy capitalism!

Dear Lou,

Would you kindly comment on B2GOLD CORP. (BTO.TO) ?
Your help, as always, is very much appreciated.

              Binh

Hi Binh,

I last ran the charts for B2Gold Corp. (BTO TSX) on June 21, 2011 for Julian. At the time it was advised that the uptrend was firmly in place and that there was more in the tank.  Since then the shares have added another 30.8% . Sweet!

If you already own BTO the gain should not give you a license to ignore your investment. If you ignore your money it will go away. If your are thinking of buying the stock it could be a case of buying high and selling higher.

If you want to confirm your buy, sell, hold decisions you must run the charts and dig into the data stream every single day. You need to test and confirm the reasons you originally bought the stock. Have conditions changed? Has there been a breach of the trend line? If this sounds like too much work just remember its not like digging a ditch and its your money after all!

Lets check the charts.

The three year chart continues to show the signs of a sustained advance. The uptrend line is still intact. The stock repeatedly tests support along the trend line and the 50 day moving average. When it has tested the 200 day moving average investors were willing to enter the fray and buy.

I would keep an eye on volume. The average daily volume over the last three months is 1.89 million shares a day. Over the last thirty days the volume has thinned out. Not alarmingly but you need to keep an eye on it.

The six month chart holds a number of features worth noting. The multiple touches on the 50 day moving average indicates investor conviction. Buying comes in on weakness. Even in August of 2011 on the breach of the trend line and 50 day moving average the shares caught a bounce off the 200 day moving average. As mentioned in the last report on BTO the MACD has been generating lots of buy and sell signals for traders.

Currently there are a few things to watch besides volume. The period of seasonal strength for gold comes to an end in early October. That could very well have an effect on the trading value of the shares. In addition it looks like BTO has gotten a bit ahead of itself at the moment. The MACD looks to be turning lower as does the RSI.

With these factors in play it would be wise to buy on a pullback and continue to watch the trend. The trend is your friend until the end!

Make it a profitable day and happy capitalism!

I

Lou,

Could we get your assessment of EAST ASIA MINERALS (EAS)

 Thanks

Robbie

Hi Robbie,

East Asia Minerals Corporation ( EAS TSXV) is in the process of spinning off assets to existing shareholders and focusing their efforts on the Miwah gold project in Indonesia. As they transition from the exploration phase towards feasibility they have made changes in the executive suite. President, CEO, and director Michael Hawkins resigned July 26, 2011.

The stock has been in a sharp decline since May of this year. Some but not all of the retreat can be attributed to the efforts to distribute assets to shareholders. A review of the charts will help to explain the prospects for the shares

The three year chart tells the tale of an aggressive retreat from the highs of $8.55 on December 31, 2010.  From there it pulled back to $5.50 in March, 2011 when it announced the distribution of assets.  Worth noting is that a death cross surfaced in March as well. The shares held on to $5.50 until late April of 2o11 but after that it fell into a water fall sell off.

The six month chart illustrates the sell signal generated by the MACD in late April as the stock was trading at $5.00. From there it was all down hill. The MACD generated another sell signal in mid July when there was still an opportunity to get off the ride at $3.00. The RSI indicates that EAS has been oversold since mid July which is a sign of weakness.

EAS is a prime example of taking profits when they are available. The selling that has take the shares from $8.55 to $5.50 to $3.00 and now to $0.78 is a ride no one should ever take twice. Also keep in mind that the company is a junior mining company that has yet to generate revenue or a gram of gold.

If you are thinking of bottom fishing this one be cautious! These are dangerous waters!

Make it a profitable day and happy capitalism!

Hi Lou,

 I’m wondering if Osisko could be looking at an upturn since they
are now ramping up production and all seems to be according to plan. It
seems to me that they aren’t benefiting at all from the recent run up in
gold itself, at least as much as the other producers.

Ken

Hi Ken,

Osisko Mining Corp. (OSK TSX) has created tons of wealth when it came off a rock bottom at $1.60 in late 2008. No one should complain about a better than 700% return on investment in less than three years. I understand your concern that the company seems to be lagging as the price of gold surges.

But keep in mind that its not a problem unique to OSK. The entire gold mining sector has lagged the advance of the underlying commodity given that we are looking at the behavior of two different classes of investors. People who buy stocks are on balance a more conservative lot than those that invest in commodities through futures and options. What you can expect is that there will be a point where gold mining stocks will respond to evidence that the current price of gold is sustainable. There is a school of thought that believes that the price of gold has gotten a bit toppy.

The charts will provide a better picture of what has and may happen with your stock.

The three year chart for the iShares Canadian S&P/TSX Global Index Fund will provide a reasonable proxy for the gold mining sector. As you can see the group has not moved as aggressively as the price of gold. 

 When you examine  the three year chart for OSK its clear that it was a curve maker rising much faster than its peers before settling into a range bound pattern in 2011. The range is defined by resistance at $15.50 and support at $12.75.

The MACD signalled a top on the six month chart that surfaced in early July as the stock approached $16.00. There is currently no indication that the shares are about to reverse the selling.

If you like the OSK story and want to hitch a ride as they ramp up production and reduce their cash cost per ounce wait for a shift in momentum to the buy side.

Make it a profitable day and happy capitalism!

Hi Lou,

Could you comment on Aura Minerals. It seems to be dropping out of the sky at the moment.

Would it be a good time to buy in ?

Thanks,

Jim

Hi Jim,

You have been bottom fishing Aura Minerals Inc. (ORA TSX) since your last request for an opinion back on April 13, 2011. At the time it was identified that there was a double bottom that formed at $2.53 which as a trend reversal pattern suggested a lift was possible. The stock moved to $3.10 by May o1, 2011 for a 22% gain but that was all the gas left in the tank. Since then it has been a sorry tale of woe as ORA has continued to sell off.

Lets consult the charts to see if the selling  has abated and set the stage  for an upside.

The three year chart clearly illustrates a stock that has lost investor confidence and has not been able to hold onto support at various levels. The decline that started in May accelerated as the company reported Q1 results on June 14 that missed expectations.

Some of the factors that led to the decline included heavy rain fall in Brazil and dedicated waste stripping at the Sao Francisco mine. Long term these are not chronic conditions but in a downtrend they just add fuel to the fire.

The six month chart depicts the double bottom identified in the April report and the run to resistance at $3.00. Unfortunately the uptrend was not sustained as investor enthusiasm dissipated. The shares were not  able to break above the 50 day moving average through May and early June. Finally the Q1 results increased the selling that has taken the stock below $2.00.

Calling an absolute bottom or an absolute top is a very difficult undertaking. The best strategy is to get in late and leave early. Yes you will leave some money on the table but it also reduces the risks associated with having your money in the market.

Given your interest it seems you want to be a buyer so lets make sure you are aware of the period of seasonal strength for precious metals stocks that begins in mid July and runs until October.ORA is  definitely oversold and at some point it will make the turn to the upside. Maintain your surveillance on the MACD for a signal that momentum has shifted to the buy side.

 In addition keep an eye on volume. The average daily volume for ORA over the last three months has been 834,405. Not once in the last 30 days of trading has volume exceeded that level. A stock can’t go up without investors willing to bid up the stock. Finally watch for resistance levels at $2.20 and $2.60.

Make it a profitable day and happy capitalism!