Once each week on BMR, our technical analyst reviews an interesting junior resource stock (outside the BMR Portfolio) in detail from a technical point of view. Investors/traders of course should perform their own due diligence, as always, and consider fundamental factors as well. This weekly feature is merely meant to introduce some possible opportunities that readers may wish to investigate. Tonight, John takes a look at a company that made a huge run last month but recently has pulled back – Golden Hope Mines (GNH, TSX-V) which has promising gold and base metal properties in southern Quebec:
John: Golden Hope’s main project is located on a mineralized belt in southern Quebec that is mostly owned by the company and includes the Bellechasse (Timmins) gold deposit and other geological formations. Drilling started in mid-April and by the end of June, 5,000 metres were completed and an additional 600 metres were drilled on the Beland anomoly 6.2 kilometres southwest of the Bellechasse (Timmins) deposit. Assay results are expected shortly. More drilling is in progress.
Looking at the chart we see that GNH has been trading in a downsloping channel for the past 17 days and Wednesday it broke down through its EMA-20 (exponential moving average) to a low of 53 cents and closed at 54 cents. Today it opened up at 55 cents and climbed during the day, with the help of a bullish gold market, to a high of 59 cents but pulled back and closed at the opening price of 55 cents. The candle for the day is a Gravestone Doji which shows that the bulls were dominant during the day but later the bears overcame their strength and the stock finished where it began at 55 cents. GNH is consolidating with average daily volume drifting lower (mauve sloping line) and like many other companies it’s waiting for drill results.
The Fibonacci levels are shown (green lines) with the 61.8% level at 52 cents, so expect the stock to find strong support around there. The stock rocketed from a low of 16 cents near the end of May to a high of 74 cents near the end of June where it met resistance at its all-time high from early 2007. GNH’s long-term moving averages are in bullish alignment, so after digesting its recent huge move over a very short period there is clearly the possibility of another assault on its all-time high and a potential breakout from there.
Looking at the indicators:
The RSI has formed an “M” formation (mauve circle) around the 50% level which is a bearish sign and is presently down at 43%. Also shown is a previous “M” formation occurring at the end of April/early May, 2010, and a thin black line points to the resulting decline in price – bearish.
The Slow Stochastics has the %K (black line) breaking down over the %D (red line) – bearish.
The ADX trend indicator has the -DI (red line) above the +DI (green line) – slightly bearish – while the ADX trend strength indicator (black line) is low and flat indicating that the bearish trend is weak.
The average volume during the consolidation period, as previously stated, is declining as expected.
Outlook: GNH is likely to continue to consolidate until drill results are released (or draw very near) which means we can expect more softness in the immediate term. The 52 cent Fibonacci level, however, should provide strong support.
