The South 32 all-cash acquisition of Arizona Mining (TSX:AZ) for US$1.6 billion is some of the best news the junior mining sector has received all year. In fact, it comes at a much needed time after a few lackluster months for the sector. Everyone can agree that Arizona Mining was a raging success and an example of one of the best scenarios investors can hope for in the junior mining sector. Considering that AZ is a raging success it's useful to study the AZ chart to get a better idea of what investors can expect in terms of price action in the most bullish stocks.
AZ.TO (Weekly - 3 Year)
From the commodity bottom in January 2016 AZ gained more than 1000% in the span of less than one year before concerns about metallurgy triggered a sharp correction in December 2016. From December 2016 to April 2017 AZ shares fell roughly 50% before putting in place a major low. I think this is extremely instructive, because even in the biggest long term winners we should still expect at least one 50% decline over the course of a multi-year period.
In the case of AZ one of the major triggers for the December 2016 - April 2017 decline were what proved to be tremendously overblown rumors and flat-out fake news reporting (including being called a 'mini Bre-X') on alleged fatal flaws in the project's metallurgy (too much manganese).
It turns out that the comparisons to Bre-x, the biggest fraud in mining history, combined with the downward price action in December 2016 ended up shaking loose a lot of retail investors who had been long AZ shares since newsletter writers, such as John Kaiser, brought Arizona Mining to their attention in early 2016. This proved to be one of the classic stock market wealth transfers, from lesser informed weak hands to better informed strong hands.
Even the most bullish stocks climb a wall of worry, especially in the resource sector with the numerous hurdles projects must jump over to move into production. Notice that the weekly RSI-14 (at top) did not move into 'oversold' territory (below 30) at the 2017 low, this is something that we should want to see during corrections in the most bullish long term trends.
Another instructive aspect of the AZ chart is the breakout above C$3.50 which occurred in January of this year; the decisive breakout had more volume than the failed breakout during October 2017, moreover, the breakout candlestick was large-bodied with a weekly close right near the highs for the week. In addition, the following week's candlestick also had a relatively large body and increasing volume. This is the sort of price and volume action we want to see in the most powerful breakouts; from a market psychology standpoint this means that buyers are overpowering sellers decisively and price is forced to move significantly higher in order to restore supply/demand equilibrium.
We can learn a lot by studying the charts of the biggest success stories; patterns repeat and market participant psychology never changes. Congratulations to all Arizona Mining shareholders and may we have more success stories in the junior resource sector throughout the rest of 2018!
DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.