-- Posted Monday, 30 June 2003 | Digg This Article
If you are the kind of investor who likes to buy a stock right at the start of a major, Stage 2 bull market advance then this is the stock for you. The long-term chart of Golden Star is a classic, showing the price just beginning to accelerate up and away from a big saucer base of about 5 years’ duration. It is fitting here to pay tribute to all those smart money investors whose persistent buying throughout the formation of this saucer pattern put a floor under this stock, gradually turned the trend up, and prepared it for the major advance that lies immediately ahead of us. Their efforts surely deserve appreciation, for all we have to do now is climb aboard and enjoy the ride. Where is it headed? Personally, I would be surprised if it didn’t reach at least $20 during the later stages of the developing gold bull market. However, keep in mind that this is a probability, and not a certainty.
Before turning from the long-term chart, observe two things. Past price action shows that this stock is capable of making big moves, although the degree to which that is now true is clearly a function of how many shares are in issue, as compared to the quantity available in earlier times. Another point to note is the huge increase in volume in 2002 and 2003 – a very large amount of stock has changed hands, from weaker to stronger hands, in my view – many sellers had likely bought at higher levels years ago. Observe also how the volume has increased not just at the minor peaks, as one would expect, but on all the rallies, which is bullish.
Turning now to the one-year chart, we can see the price reacting back from a short-term overbought condition that developed as a result of the breakout from the saucer formation early this month. I mentioned the stock a couple of weeks ago in my piece entitled “The Broad Market and Gold Stocks”, pointing out that it was overbought and would be a buy on a reaction. I have added the 20-day moving average to this chart, and we can see that the reaction back to it has now fully unwound the short-term overbought condition. However, we still have a medium-term overbought condition, as shown by the gap with the 50-day moving average. The trick now is to determine the likelihood of it reacting further back to this average before turning up, or whether we go up from here – stocks in accelerating uptrends can become overbought and STAY overbought for a considerable period. In weighing these probabilities we should also note that there is considerable support in the $2.25 area, not just from the rising 50-day moving average which is currently approaching this price, but from the early sellers who capped the advance last winter and who will now want back in. I am undecided about whether go up from here, from $2.25, or somewhere in between, and would, if wishing to invest in the stock for the medium or long-term, probably do some buying here and add to the position should it dip to about $2.25, that way, I’d be reasonably happy whichever of these mini-scenarios eventuates. To be on the safe side a stop could be placed around $1.90. A reaction back to the area of the 200-day moving average now at around $1.75 would not abort the bullish pattern, but I consider that to be very unlikely.
With saucer patterns you often have what I would call a “rolling breakout”, in other words the breakout is not a single event but a series of moves. So we can see the preliminary breakout in the summer of last year, another stab at it last winter, and what looks like a more definite breakout a few weeks ago, although it may yet slip back into pattern, but the next advance is likely to take it clear of the saucer.
One final point, when the mob eventually turn up, several years hence, urgently wanting to buy gold stocks and driving prices higher as the parabolic uptrend approaches the vertical, the name of this stock should attract additional buying – it’s got gold in the name – and it’s a star – now how about that for serious fundamental analysis!!
Golden Star Resources, GSS on AMEX
Closed at $2.56 on 27th June 2003
By Clive Maund, no responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
Disclosure: I don't own any Golden Star.
Kaufbeuren, Germany, 30 th June 2003
-- Posted Monday, 30 June 2003 | Digg This Article
