Context is key, yet it can also lead us astray if we are not aware of our cognitive biases.
Is $NAK a better buy here...
Or here...
The two charts are very different yet the price level of NAK is essentially the exact same.
The major difference is that at the close on December 1, 2016 Northern Dynasty shares had just completed a bullish trading session which had seen heavy volume buying and a breakout from a bullish falling wedge pattern. Whereas, this morning NAK is struggling to find its footing after falling ~60% in barely more than a week.
In theory NAK shares should offer more value today than they did on December 1st given that the Trump administration appears to be on the verge of getting Scott Pruitt in as the head of the EPA. Moreover, the company raised ~US$37.5 million in a bought deal private placement at US$1.85 per share (above today's trading levels) in January which should give Northern Dynasty ample capital to further advance its Pebble Project and move into the environmental permitting stage with a much more favorable group of people in D.C. and at the EPA.
Value is revealed over time. However, fear and greed, and the momentum which these two emotions create dominate investor psychology over the short term. There is a good chance that the pendulum may have swung too far to the downside this morning after swinging too far to the other side a month ago. I posted the following comment in the Trading Lab shortly after today's open with Northern Dynasty shares down more than 10%:
"$NAK is about as oversold as it gets, pendulum may have swung too far here. Short of EPA's Pruitt coming out and saying "this project isn't going forward" I think the margin of safety is pretty good at these levels."
At least in the very short term this has proven to be correct with $NAK $NDM shares rebounding 15%+ and filling their opening gap lower.
"When things are going well and prices are high, investors rush to buy, forgetting all prudence. Then, when there’s chaos all around and assets are on the bargain counter, they lose all willingness to bear risk and rush to sell. And it will ever be so." ~ Howard Marks
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