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Good Morning Readers
As I wrote yesterday morning, the day went
exactly as scripted. After Avalon (AVL) bounced 14% on Tuesday a 4%
retracement, closing at $7.83, on profit taking is usual and healthy. I have
not changed my mind that once this stock puts a level of support at the $8.00
level it will continue to move up to the $11.00 level. Indeed, according to
my sources there was a buzz that this stock is ripe to be taken over by a
major or a Chinese company.
Lynas Corp. (LYSCF) also retraced a bit to
close at $2.22. This stock is perfectly situated both geographically and in
terms of production because it is located in Australia and mines molybdenum
which is a critical element in the production of high strength steel need in
the reconstruction of Japan. Yesterday Lynas came to an agreement with the
Sojitz Corporation of Japan and proves that the Japanese are returning to
work by seeking future supplies of these rare earth commodities which are
required for the latest technologies. Under the deal with Sojitz, Lynas will
be able to begin the second phase construction of which would double its
output by 2013. The timing was excellent for Lynas who will be able to
increase their output at a time where the supply constraints will certainly
intensify. Lynas is perfectly positioned and long term holders will benefit.
We may see some short term weakness due to the financing by the Sojitz
Company and if there is pullbacks to the $2.00 level this should be used as
an opportunity to add to long term positions. I expect the miners to follow the
prices higher and Lynas is ripe to break out into all time new highs.
General Moly (GMO) should be closely
monitored as it is showing signs of reversing its three month consolidation.
It failed to break the 50 day moving average in February and during the panic
selloff that ensued during the Japanese crisis it went as low as $4.50. A
close above $5.75 would be a signal of a major breakout. As I have previously
reported, what has caused this stock to lag was permitting problems and the
water rights decision along with the draft environmental statement should be
published soon. I would not be surprised if we receive word of the decision
in the water rights this week. I believe that as Mt. Hope comes closer to
production this stock will be rerated.
One stock that surprised me yesterday was US
Gold (UXG). As the spot price of gold went sideways this stock was up all day
and closed @ $8.73. It certainly seems that Rob McEwen will make good on his
promise to turn this stock into a major and take it to the NYSE. With this
holding patience will be rewarded.
As my daily readers know, I write about the
good choices I make as well as the poor choices I make. I consider my post
better than a text book because if you read me on a regular basis you will
know that this is not theoretical – it is real life.
There is a holding I have studied for a
while. It is International Tower Hill Mines (THM). The reason I never bought
it or recommended it was because it traded on anemic volume. As you who read
me on a regular basis know, what I consider the first “tell” in
buying a stock is the volume it trades on. Well yesterday Reuters reported
that this stock was ready to breakout into the $10.50 level and would go to
$12.00 and probably be acquired by a major.
A careful look at the chart will show that it
tested and bounced off of the $8.00 level twice, once in January and then
again in March. Both times the volume was unbelievably anemic. This was
telling me that it was not being shaken out and being bought by investors. As
I have written in the past, when a stock is about to breakout the stock will
put in a series of lows to shake out the “faint of heart”
investors. This did happen but there was no volume to confirm that it was
being bought by the pros. This is a great chart to study because it has all
of the signs of a stock that is about to breakout except for one thing, there
is no volume! The stock put in the classic double bottom; the stock then ran
up and crossed the 50 day moving average which is confirmed by the MACD line
crossing the 9 day exponential moving average. Yesterday it ran up 5% to
close at $9.90 on 922,820 shares traded. A look at the chart which spans
about six months shows that this was one of the highest volume days. My idea
of a stock that is breaking out is that it has investors climbing over each
other to get in. 925,000 shares traded does not look like a stock that is
about to be acquired to me. I highlight this stock to show you that
opportunities can be missed. I, however, love to quote Doug Kass who loves to
say that “I would rather lose an opportunity than to lose
capital.” I will keep an eye on this stock but I will never
change my mind that the most important thing to look at when deciding what to
buy is the volume it trades at. Let me close this post by saying this. What
good does it do you to have the best stock in the world if when it is time to
sell, there are no buyers. Always remember that the market is a zero sum game
– for every seller there has to be a buyer.
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