-- Posted Wednesday, 9 July 2003 | Digg This Article
Vista Gold has been very quiet for the past four months, becoming uncannily quiet over the last few weeks – suggesting to me that a sizeable move is likely imminent.
Vista is a very interesting stock technically, somewhat bizarre and prone to violent swings in either direction. I do not regard this stock primarily as an investment, but rather as a speculative counter. If you get it right trading this stock, you can make a killing, equally, if you get it wrong, you get killed – for this is a stock that takes no prisoners. Accordingly, it should be treated with considerable respect.
I recommended Vista last November at $2.50, and again in early January at $4.35, as it was in an ascending parabolic uptrend, which I expected to break through the resistance at $6.00 and spike upwards to higher levels. It got to $6, then smartly turned around, the advance killed by a tidal wave of insider selling, broke the parabolic uptrend and came hammering back down again. It then formed a very tidy downward sloping symmetrical triangle, perched right on the 200-day moving average, before, in typical Vista fashion, a sharp plunge down to about $3. Since that plunge it has been trading sideways in a gradually narrowing trading range up to the present.
If we look now at the one-year chart for Vista we can see all the action I have described above. Pay particular attention to the interplay of the moving averages, this is extremely important for timing purposes – it was partly the relationship of the moving averages that prompted me to issue a “breakout alert” for Desert Sun a few days before the recent big move, but remember that we are always dealing with probabilities and not certainties. Observe the technically “tight” situation that now exists in Vista, with the price and the 50 and 200-day moving averages very close together and running virtually flat! Note that the slightly downtrending 200-day moving average will shortly turn up, as the higher price values last September drop out over the next couple of weeks. One sharp move up now by Vista and you will very quickly have a “golden cross” – the price above the 50-day moving average and this average rising up through the 200-day moving average – signalling the start of a new intermediate uptrend. We must keep in mind that the next significant move could be down not up, this stock tends to camouflage impending moves so that it can be very difficult to determine the direction of the next breakout. The reason it is important to make an assessment ahead of a breakout and take a position beforehand is that when Vista breaks out it tends to do so violently, and you can miss a substantial part of a move just by missing the breakout. What matters here is to determine the probability of an upside break relative to a downside break and then to determine the extent of the ensuing moves in both scenarios, this enables a trading strategy to be adopted whichever way it breaks. I rate the chance of an upside break in the near future at 70% against 30% for a downside break. There are several reasons for this; the first is that gold itself is oversold and the HUI looks to be preparing for a big upside move, the second is that Vista looks to be towards the bottom of a larger trading range bounded by $2.50 - $3.00 and $6.00, which I have drawn on the chart, the third is that the current trading range appears to be a gently rising flat-topped triangle – flat-topped triangles are bullish. The fourth is that Vista has been sold down hard and has not performed at all since late last year. I believe an upside break would likely take the price swiftly into the $4 - $4.50 area, where it will need to work off resistance from the trading in that triangle earlier in the year. On the other hand a downside break, which would probably be signalled by a sharp fall to about $2.80 would lead to the price retreating to support in the $2.50 area.
Obviously, the right way to trade this stock if options were available would be a straddle, calls with enough puts to cover a downside break. As I intimated above, I now view Vista as a traders stock, at least for the time being, investors who want a much more certain return on their money over a longer time frame should go for stocks like Golden Star and Miramar.
The uncanny quiet in Vista stock is dramatically illustrated by the one-year chart with bollinger bands. Here we see how these bands have narrowed remarkably in recent weeks, this behaviour is frequently the forerunner to a big move.
My fundamental knowledge of Vista is confined to the memory of a photo of a huge mining truck in a vast open pit, of the type that carted away Mt Price in Australia, so you will understand when I state that those interested in this stock should “do your own due diligence”.
To end on an encouraging note, the 10-year chart of Vista, shown below, shows a huge “Frying Pan” base with heavy upside volume over the past 18 months or so, which to me, longer-term, portends a probable huge rise, which, of course, fits with a much higher gold price.
Vista Gold Corp., VGZ on AMEX
Closed at $3.32 on 8th July 2003 ($3.25 at time of writing)
By Clive Maund, no responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
Kaufbeuren, Germany, 9 th July 2003
-- Posted Wednesday, 9 July 2003 | Digg This Article
