With strategically located properties along the Cadillac Trend, and the recent “steal” of an entire former producing Gold and silver camp in Utah, Cadillac Mining (CQX, TSX-V) is uniquely positioned for its best year ever. The volume and price surge with this stock late last year was evidence of major accumulation in advance of a new chapter in this company’s history. Cadillac’s market cap is only $8 million. CQX has a tight share structure and it’s led by strong management. After a dramatic run that resulted in a 10-fold increase in its stock price from November 1 to early January (5 cents to 50 cents), Cadillac paused and decided to catch its breath. It gave back about half of those gains (technically a very normal pullback) before staging a bullish reversal during Friday’s trading, likely marking the end of its January slump. John examines CQX’s very interesting chart:
John: On Friday, Cadillac Mining opened at 29 cents, dipped to its low of 26 cents and then rose powerfully to a high of 33 cents before closing at 32 cents for a gain of 3 pennies (10.34%) on relatively heavy CDNX volume of 726,000 shares. This was a bullish hammer reversal which suggests the start of a new uptrend:
Looking at the 6-month daily chart we see that there was a false breakout of the pennant at the beginning of the year which created a divergence between the price and the RSI. This warned investors of impending weakness which we saw until last Friday. During 2011 the stock has retreated from a high of 50 cents to Friday’s low of 26 cents, almost a 50% retracement (a drop of this magnitude is quite normal after such a huge increase in the stock price).
Friday’s trading signaled a reversal. The candle was a bullish “hammer” supported by the highest trading volume of the year with the stock also gaining 3 cents. This was the first bullish trading day in the last 6 sessions. There is huge support in the mid-20’s, as we saw Friday, with the Fibonacci 61.8% level at 25 cents and the supporting SMA(50) at 26 cents. Friday was likely the bottom of this decline. The next Fibonacci target is at 56 cents (this is not a BMR price target as we don’t give price targets but a theoretical Fibonacci level based on technical analysis).
Looking at the indicators:
The RSI has bounced up from the RSI 40% support level (horizontal orange line). The previous overbought level has been completely unwound – very bullish.
The Chaikin Money Flow (CMF) indicator shows the buying pressure is now bullish after CQX was under selling pressure for the previous 5 sessions – very bullish.
The ADX trend indicator is directionless as shown by the entwining of the +DI and -DI indicators and the weakening of the ADX (black line) trend strength indicator. This orientation is typical of a reversal after a retracement.
Outlook: The first stage of the reversal process occurred on Friday. The chart pattern and indicators all point to increased upside movement for Cadillac Mining. Do your DD – this is a very bullish scenario.
Note: Each of the writers (John and Jon) holds a position in CQX.
