The months of July and August 2018 have (and August isn't over yet) been among the very worst months I can recall as an investor in the junior mining sector (and I was very much involved during the bear markets of 2008, 2013, and 2015); at the low on August 16th the GDXJ had shed nearly 20% since the beginning of July and the average junior mining stock had fallen by more than 30% over the same time frame. Despite this carnage across the sector there have been a surprising number of bright spots, all of which have been centered around drill plays that are aggressively exploring their property packages and delivering exceptional results and new discoveries.
I have selected 5 stocks that have been front and center among the exploration bright spots in the junior mining sector since July 24th, 2018 - in alphabetical order they are: Aben Resources (ABN.V), Great Bear Resources (GBR.V), Golden Ridge Resources (GLDN.V), Sokoman Iron Corp. (SIC.V), and Triumph Gold Corp. (TIG.V).
It all began with a relatively quiet NR from Sokoman on the morning of July 24th. While the stock reacted a bit to the NR with the stunning headline intersection of 44.96 g/t Au over 11.9 meters, it was nothing like one would expect in a C$5 million market cap stock. This slow response to the news (gapped up less than 50% after halt was lifted) allowed myself and many Trading Lab subscribers to get into SIC shares below C$.10 on July 24th. The powerful uptrend which would ensue over the next two weeks in SIC would prove to foreshadow similar exploration successes in the other stocks on our list:
SIC.V (Daily - 3 months)
The power and magnitude of the Sokoman rally between July 24th and August 7th served to reawaken a gloomy and downtrodden sector. Perhaps most importantly it made a lot of people money!!
It also reminded investors that junior mining stocks can still go up when they deliver BIG results!! The gold chart doesn't have to be in a strong uptrend for tiny market cap companies that deliver stellar exploration successes to see MASSIVE appreciation in their share price (Sokoman went on to gain nearly 1000% from July 23rd to its high at C$.58 just ten trading days later!).
Aben Resources was next to deliver a blockbuster news release with 38.7 g/t Au over 10.0 meters announced on the morning of August 9th. Interestingly enough this Aben home run drill hole was reported just a couple of days after Sokoman shares ran out of fuel and began to pull-back.
Allow me to digress, my intention wasn't to write a short history of junior mining exploration success during July/August 2018. I simply want to lay the foundation and set the context for what this blog post is really about.
As I've been studying these charts over the last month I've noticed that a simple trend following trading strategy would have worked very nicely in many of these exploration success stories.
Let me explain.
A basic strategy of buying a stock that is breaking out from a broad basing pattern AND closing at a new year-to-date high closing level would have a trader well into the green on each one of the stocks that are highlighted in this post (ABN, GBR, GLDN, SIC, TIG). I will also outline a simple profit taking and stop loss strategy:
- Buy year-to-date high breakout close (buy in final 5 minutes of trading session when price is bid at 2018 high level) from broad basing pattern - add a volume screener that volume must be at least 2x daily average volume to have a better chance of avoiding false breakouts.
- No stop loss initially to avoid whipsaws. However, we would certainly be disciplined and exit if the breakout wasn't materializing and the stock was simply moving back into its previous trading range after a couple of weeks.
- On +25% move stop loss to initial entry price.
- Sell 1/2 of position on a double (+100%) and move stop on remaining 1/2 to 50% above entry price.
- Sell 1/4 (of initial position) on a triple (+200%) and leave stop the same.
- Hold the final 1/4 for a 10-bagger (+900% from entry price)
This is not a scientifically analysed strategy. It's simply something that makes sense to me and I believe would work pretty well in the vast majority of breakout stock plays in the junior mining sector. Let's see how it would have worked on our chosen handful (NOTE: All trade entries and positions mentioned below are hypothetical and based upon the system described):
Aben Resources (ABN.V)
In the case of ABN our simple strategy wouldn't have gotten us in ahead the first blockbuster NR. Instead, it would have gotten us in at the closing price on August 9th (C$.29). Using our system we would now be holding 100% of our initial position (with a +48.3% unrealized profit) with a stop loss in at C$.29.
Great Bear Resources (GBR.V)
Our strategy would have gotten us long GBR at C$.72 last Tuesday just in time for their big release Wednesday morning. The system would have exited 1/2 on a double Wednesday morning and we'd still be holding 1/2 (with an unrealized gain of 172%) with a C$1.08 stop loss.
Golden Ridge Resources (GLDN.V)
Our system would have gotten us long at C$.225 on August 10th (a new year-to-date high CLOSING level despite the fact there was a whick up to C$.235 the day before) and we would have exited 1/2 on a double already. We would still be holding a 1/2 position in GLDN with an unrealized 95.6% gain and a stop loss at C$.34.
Sokoman Iron Corp. (SIC.V)
Our system would have gotten us long SIC shares at C$.115 on July 24th. We would have subsequently exited 1/2 for +100% and 1/4 for +200%. We would still be holding 1/4 of our initial position (with a C$.115 cost basis and a 165% unrealized gain) with a stop loss at C$.175.
Triumph Gold Corp. (TIG.V)
We would have gotten long TIG shares at C$.59 on August 20th using our simple system. We would still be holding these shares right now without a stop loss (according to our system). However, as a trader I will be closely monitoring TIG early next week and most likely I would implement a stop loss at C$.495 at the slightest sign that the breakout isn't proceeding as planned.
I present this basic strategy as food for thought and I have no doubt that there are multiple tweaks that can be implemented which will increase the results it generates. My idea is to simply demonstrate how effective a simple breakout trading system can be when stocks have set up properly and market conditions are favorable (NOTE: these charts would look even better in a raging bull market environment). I intend to continue to follow our 'Fabulous 5' stocks and monitor how the basic strategy is working. I also intend to find other stocks that meet this criteria to add to the list for the future.
With some luck we may have just witnessed the very beginning of the next junior mining bull market, and if that's the case I anticipate many more 10-bagger examples like the Sokoman Iron chart between July 23rd and August 7th. I welcome reader feedback and ideas for tweaks to the system as well as charts that are setting up nicely and could trigger a year-to-date high close breakout in the near future.
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.