In the junior mining sector the biggest gains usually come from accumulating low priced (share prices below C$.25), tiny market cap stocks (let's say below C$20 million market cap) that experience big upside breakouts and multi-bagger moves within a relatively short period of time. If we study some charts that fit the aforementioned criteria we will be able to notice some similarities in price & volume action as the uptrends gained momentum:
GGI.V (Daily - July-October 2017)
In late-July 2017 Garibaldi (TSV-V:GGI) experienced a notable change of character as it broke-out above the C$.25 level on significantly heavier volume than it had been trading up until that point in time. GGI shares also gained several hundred percent in less than two weeks as the buying pressure accelerated.
GGI would go on to consolidate throughout much of August before exploding higher throughout September and October, delivering early buyers 20+ bagger gains in less than three months. Another item of note is that during its initial late-July thrust higher the daily-RSI(14) and daily-MFI(14) both moved into 'overbought' territory (over 70 in RSI and over 80 in MFI), and stayed there as price continued trending higher. This confirms the saying that "the strongest breakouts occur in stocks that are already overbought".
I think it's also important to point out that stocks in strong uptrends will spend a lot of time above 70 on the RSI and above 80 on the MFI. In fact, another way of saying 'overbought' is 'bullish'. Often times we will see stocks have enormous moves within a short period of time AFTER they have been above 70 on the daily RSI(14) for quite some time. Let me give you another example of this:
WHN.V (Daily - June-October 2018)
Westhaven Ventures (TSX-V:WHN) had begun slowly building momentum throughout last summer and then something happened on September 10th, 2018 which was highly noteworthy; the stock jumped nearly 10% on nearly 700,000 shares traded. Exceptionally high volume for a stock that had typically traded between 50,000 and 100,000 shares per day. Over the next several weeks WHN continued climbing on above average volume and by the close on October 12th, 2018 WHN shares had more than doubled within the span of a month and the daily-RSI(14) was above 80 and the daily-MFI(14) was above 90. Pretty hot by any standards!
Let's see what happened next....
WHN.V (Daily - August-November 2018)
News that was released on October 17th and October 31st ended up helping catalyze WHN shares to gain nearly 300% from the close on October 12th through to the session high on October 31st. As is often said the news "surprised" in the direction of the preceding price trend. We see this happen more often than not in the junior mining sector (bad news is announced after a downtrend and good news is announced after an uptrend).
Another recent example of news surprising in the direction of the preceding price trend is Amex Exploration (TSX-V:AMX), a stock that I happened to pick in the CEO.ca Stock Picking Contest:
AMX.V (Daily - August 2018-January 2019)
AMX underwent a notable character change in early December as volume increased substantially while price broke-out above its long standing trading range. Guess what else happened? You guessed it, the daily-RSI(14) moved above 70 and stayed there for a couple of weeks. AMX continued steadily trending higher for several weeks including some notable buying on holiday shortened trading sessions at the end of the year that are typically very quiet - I made note of this unusual behavior several times in the Trading Lab in late-December:
Then on January 17th AMX experienced an explosive trading session, trading more than 1.2 million shares while gaining 35%. Once again we had a price breakout confirmed by a significant uptick in volume.
Let's see what happened next...
Since the close on January 17th AMX shares have doubled. This ~100% price increase has also occurred on enormous trading volume, the heaviest trading in the stock's history. Without delving into the fundamentals or any details of the company's story it's clear that recent news has indeed "surprised" in the direction of the preceding price trend.
The question AMX longs need to be asking themselves now is when does "overbought" become "too overbought" and frothy. With daily-MFI(14) at 99 recent buying pressure doesn't get much stronger or "overheated" depending upon how one looks at it.
For the record I still own shares in Westhaven Ventures and I recently exited the rest of my position in Amex Exploration (which had been mostly purchased around $.16 and $.17 in December).
Regardless of what happens from here on out we can agree that that initial build-ups and breakouts in GGI, WHN, and AMX are all extremely impressive and resulted in multi-bagger gains for longs within relatively short time periods.
Here's what all of these breakout stock charts have in common:
- Significant uptick in volume traded as price broke-out from a long held trading range (the sort of volume and price action you simply can't miss if you've been following the stock day after day).
- All of the above charts quickly moved into "overbought" territory (daily-RSI(14) above 70 and/or daily-MFI(14) above 80) soon after the initial uptick in volume, and more importantly stayed in overbought territory for extended periods of time (weeks and sometimes months).
- The strongest breakouts (large price and volume moves) occurred when the daily-RSI(14) was above 70.
- The news "surprises" occurred in the direction of the preceding trend (good news came after a steady uptrend) and in each case the 50-day simple moving average was above the 200-day moving average and both moving averages were curving higher to varying degrees (confirmation of uptrend) when positive news surprises were announced.
Technical analysis of junior miners and breakout stock charts is one of my favorite subjects and this post is far from an exhaustive analysis of these topics. However, it was clear to me after the recent move in AMX that these big junior mining movers have some key characteristics in common. My next post on this topic will be on how to identify when a breakout may be about to fail OR when a stock that has had a big move is about to rollover.
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.