Novo Resources shareholders have had a tough last couple of weeks. After spending several weeks churning a significant amount of volume between roughly C$7.00 and C$8.50, NVO broke support and its rising 50-day moving average near C$7.00 last Tuesday:
NVO.V (Daily - 6 Months)
A steady decline which began November 8th has given way to a panic sell-off since Novo issued a disappointing news release Friday morning.
After holding Novo shares for a few weeks (and at one point having a nearly 20% unrealized gain) I was stopped out during last Tuesday's breach of support. As frustrating as it may have been to have gotten stopped out for a small loss last Tuesday, I am grateful for disciplined risk management and to have missed the ~35% decline in the last four trading sessions.
I often emphasize that the most valuable aspect of technical analysis is its effectiveness as a risk management tool. Regardless of what my opinion is about Quinton Hennigh's "precipitation theory" or how many ounces I believe may be under the earth in the Pilbara, TA had me exit the stock on the breach of support. My opinion, or your opinion for that matter, does not matter. Price DOES MATTER.
At some point the expert technical analyst makes the mental leap of accepting that PRICE IS TRUTH and people's opinions are just that, opinions. People lie, price doesn't. The reason why price is truth is because it's the only thing that we can objectively measure, and by which we are all equally measured. My brokerage account equity is based on the current market price, not my opinion of what the market price should be.
I can't call up my broker and tell him that Novo really has 50 million ounces and its stock price should be C$20, therefore I should have a lot more equity in my account. He would laugh at me and think I was delusional, yet we see people behave like this all the time in the stock market. Investors regularly fall in love with their investment theses and allow their opinions to walk themselves into any number of pitfalls. Whereas, if they employed a disciplined risk management strategy based off price they would avoid some of the worst pitfalls. After 15 years as a regular market participant I have learned that staying in the game is more than half the battle. Massive losses are the only thing which can take us out of the game.
Right now Novo has a badly damaged chart that is in need of repair. This will take time and from my standpoint there is no hurry to rush in and buy Novo shares after the damage which has been inflicted on the chart in the last week.
The C$4.00 level is an interesting spot to potentially get long over the next couple of weeks. The fact that this was the level at which Kirkland Lake Gold (KL) invested C$56 million just a couple of months ago adds extra significance. If KL has the same, or greater, conviction which it had in September then we can probably expect some open market purchases near the C$4.00 level.
It's also worth noting that Eric Sprott, the single largest shareholder of NVO (both through his personal ownership and his ownership of Kirkland Lake Gold shares), has seen the value of his ownership interest in Novo decline by more than C$40 million in the last week. Perhaps for Mr. Sprott TA is bullshit because it would be impractical/impossible to liquidate millions of shares in a single day. However, for small investors like myself TA is a highly effective risk management tool, and in the case of Novo Resources it saved myself and Trading Lab subscribers from suffering a substantial loss.
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.
