CEO.CA Weekly Wrap
A look at some of the week’s best chats and charts on CEO.CA, a community and platform for Canada’s venture stock markets.
A strong week for Canadian small caps ended up with the TSX-Venture Composite closing right on important support/resistance near the 630 level:
TSX-Venture Composite (Daily)
Since making an important low at 528.53 on Christmas Eve the TSX-Venture has rallied nearly 20% and put in place a series of higher lows (blue arrows) in the process. However, the TSX-V has been turned away on the first couple of attempts to break above resistance near 630 so far in 2019.
Perhaps this third attempt will be the charm? A breakout above 630 will target 670+ over the next few weeks.
Last week there were some notable trading opportunities across the junior mining sector including in Continental Gold (TSX:CNL) and Novo Resources (TSX-V:NVO); after spending the first two months of 2019 steadily moving higher and completing broad-based multi-month bottoming patterns both CNL and NVO experienced powerful chart pattern breakouts last week.
Novo Resources (NVO) was poised to rip higher from a classic bullish cup & handle pattern Tuesday afternoon:
I posted the above chart shortly after the market close on Tuesday March 12th, 2019:
I also pointed out that I had gone long NVO shares for the first time in many months. This was largely based upon the power of the cup & handle chart pattern setup and the above average volume which only helped to further confirm the validity of the setup and the resulting potential energy from any eventual breakout.
Let’s go to the CEO.ca Pro Market Depth tape from last week and specifically focus on the 1:30 mark in the video where there is a large offer sitting at $3.20:
This offer ends up getting chewed through in about an hour (real time) and price subsequently takes off like a rocket ship, rising above $3.50 less than an hour later. Just another example of how we can use CEO Pro Market Depth to identify unique & timely trading opportunities.
In terms of trading setups in the juniors I utilize technical analysis to identify potential trade setups, I then narrow these setups down through a combination of fundamental analysis (news catalysts etc.) and ‘tape reading’ (using CEO Pro Market Depth) to optimize the timing of trade entries and exits.
When everything lines up (technicals, fundamentals, and market depth/order flow) you probably have a pretty good trade setup on your hands. Novo Resources last Tuesday/Wednesday is an example of everything lining up nicely for a short term trade setup, and the more information that was available (via CEO.ca company channel and CEO Pro Market Depth) the more confidence I had in the trade setup.
Another stock that was set up nicely at the beginning of last week was Continental Gold (TSX:CNL). Since making an important low in the $1.70s at the beginning of the year CNL had been steadily moving higher in recent weeks.
This was a chart I posted during the trading session on Tuesday March 12th:
It was clear that CNL had formed a complex head & shoulders bottom pattern with a neckline in the $2.50-$2.60 area. Once buyers were in control around the $2.60 area on Tuesday the 12th, the odds of reaching the next area of resistance between $3.00 and $3.10 increased tremendously.
CEO.ca Pro Market Depth once again helped to illustrate the accumulation in CNL during Tuesday’s trading session (starting around the :55 mark):
One of the great rules of the stock market is that news tends to “surprise” in the direction of the preceding trend. This was certainly the case in CNL on Friday morning when the company announced a US$175 million financing package backed by Newmont Mining which included convertible debentures at C$3.00 per share:
CNL shares were up about 20% in the last couple of weeks heading into Friday morning's news release - Friday’s news put to bed any questions as to whether Newmont was walking away from Continental Gold’s Buritica Project and surely gave a lot of large shareholders some relief after months of uncertainty. While Friday’s high at C$3.07 per share may be close to fully valuing the good news for CNL at this point in time, the financing news helped to take some of the worst case scenarios off the table and likely triggered some short covering.
The CNL chart and financing news announcement reminded me to formulate a list of important lessons/rules that i’ve learned over sixteen years as an investor in the junior mining sector - while nothing holds true 100% of the time in markets, i'd say that the following list holds true 90%+ of the time - that’s good enough for me and I find myself regularly being reminded of these rules/lessons:
- Good news travels fast (companies will breathlessly rush good drill results out to the market), whereas, bad news tends to travel by lame donkey (or simply get lost entirely and never reported).
- "News" tends to be in the direction of the prevailing price trend in the company's chart (companies tend to report “good” news in uptrends, and “bad” news in downtrends).
- The best trade setups occur when the fundamentals align closely with and/or confirm the chart technicals.
- Nothing changes market sentiment like price action. Look for situations in which sentiment is diverging notably from price action (stock is making higher highs/lows as sentiment remains dismal) and you have some of the ingredients for a good trade setup (all other things being equal).
- NRs (news releases) are written by company management with the sole intention of painting the best picture possible to shareholders - if you read these NRs with a skeptical eye and ask yourself the question "what's the actual reality if they are trying to make things look several shades better than things really are?" you will probably be a much smarter and more effective investor over the long run.
- The biggest gainers and best trades occur in under-the-radar situations. You probably aren’t going to find the next 10-bagger in the most popular stock on CEO.ca OR the stock that every presenter at MIF is recommending to his/her subscribers. The best risk/reward opportunities always occur in stocks that very few (or nobody) people are paying attention to.
- Think for yourself and ask company management the tough questions. I recommend all investors communicate with the management teams of junior mining companies in which they are investors. In addition, don’t take everything that management tells you at face value, ask the tough questions and don’t be afraid to ask them how things can go wrong (if they can’t answer these questions you don’t want to be a shareholder anyway).
- Don’t invest in companies that are all promotion and zero exploration. However, companies that do zero promotion are also almost as bad from a shareholder standpoint (it doesn't matter how great your project is if nobody knows about it). You need some balance with a healthy mix of exploration and fundamental progress along with some quality promotion and efforts to get the story out to a wider investor audience.
- Don’t invest in a company in which the CEO takes 25 people out to a 5-star restaurant on the company credit card (true story and this company's stock fell 90% over the next 12 months).
- And now for the 10th, and likely most controversial rule: If the chart trend looks significantly different from the "fundamental story" being portrayed by the company and its most vocal shareholders, then the chart is usually telling the real story. An example of this would be a chart that is in a strong downtrend, meanwhile, the company keeps talking about how much gold they are finding everywhere, something doesn't add up and usually the chart is telling the real story i.e. maybe the company isn't finding as much gold as they are portraying (a silly example but one which helps to make the point).
Later this week I will be proud to present an entertaining and insightful interview with @EconomicAlpha in which Luis introduces us to a couple of his favorite mining stocks right now, in addition to walking us through his investment process (including how he utilizes CEO.ca Pro Market Depth). Stay tuned!
In the meantime check out my interview with Luis from last summer!
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, 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.