It's Chart Day For USD, Gold And Gold Stocks
Brought to you by:
Advance Gold (AAX.V) - Sirios Resources (SOI.V)
Walker River Resources (WRR.V)
I’m in the camp of technical analysts that believe bull markets don’t end with a volume surge, the same can be said of bear markets. In my experience, they end on low volume. When the rollover happens in a bull market, or the turn in a bear market, it is usually on low volume.
Below is the USD index chart covering the past year. As you can see on the left side of the screen, at the lower prices the volume was very strong as it was also on the way up. Lately, the volume is drying up. With a loose cannon in the White House, who loves trade wars and tariffs, and growing the debt rapidly, the fundamentals are against the USD going higher. It looks ready to rollover in a significant way, maybe in the range of 10 to 20% correction, fairly quickly.
In the gold chart below, you can see it had a different year. It was higher this time last year, had a correction, bottomed in the fall and then gained strength into the winter. Right around the PDAC it got its annual flu and pulled back a little and has been going sideways since. What I just described is a classic bullish cup and handle. There are a couple other things to point out. One, is that at the high and in the decline there was higher volume than in the bottom and even into the advance in the winter. Although it was a bullish trend, the volume says there wasn’t a lot of conviction. In the past few months, it has been going sideways in price and volume.
Then just in the past few days we got a spike in the price and volume on gold. This was on the news that wannabe gangster President Trump announced he plans a tariff on Mexico that increases 5% per month, as long as they don’t jump to his wishes. I mean, I don’t care which side of the political divide you are on, if you can’t see Trump is a loose cannon, especially when it comes to economics, you are wilfully ignorant.
When you look at metals prices to judge the wind direction for the stocks of companies in those metals, you must look at it in the context of the USD. It is the barometer that investors watch the closest. USD looks to be topping, with volume drying up and the next move looks to be a significant correction.
On the other hand, with gold, it has gone through a bullish cup and handle, and is now looking for the bullish part after the handle. We are at a point that gold looks primed to rally, silver is even more bullish. The most beaten down are top quality exploration, development and mining stocks. Next up, I have a few stocks to discuss.
Amex Exploration (AMX.V), was a pick that I made when it was in the mid-50 cent range a few months ago. They took off not long after, have since given back some of the gains, bottomed, got stronger and have formed a very bullish cup and handle. It is one of the best looking charts on my radar screen at the moment in the exploration juniors.
Earlier, I mentioned about volume being a good indicator of changes in direction and the AMX chart shows it nicely.
In late 2018, they were a flatlining stock on low volume, then they started making noise with the drilling results from their new high-grade gold discovery and the stock started to perk up. Once I saw cross sections of the drill holes, I saw some stuff that suggested to me that this could have legs. I made it a pick around the 55 cent range, then it took off on much higher volume when it became apparent this was no one hole wonder.
As it rose, the volume stayed strong beyond the peak. Then it corrected, but, the correction was on light volume. This suggests that those buying in the big wave of volume at higher prices weren’t interested in selling lower. Now that they have completed a bullish bull and handle, I can see the shareholders being handsomely rewarded for staying patient with this one.
They still have a modest valuation for what they have found, and they are well funded for drilling throughout the remainder of 2019. I’m expecting strong news flow that will drive them to a much higher valuation.
Last time I wrote about Great Bear Resources (GBR.V) in the reports on May 7, they were in the midst of a low volume correction. I felt the price correction was overdone and it was a good time to be buying a trading position, but, not to fall in love.
Since then, they have delivered a new gold discovery on their Dixie Lake project. I think some people got a hint of the new discovery a couple weeks before the news. It was a lacklustre market for gold stocks when the stock turned around from the correction. It was a couple weeks before the news when it started trading like big news was coming.
They certainly delivered on the news with the discovery of a new high-grade gold zone, a couple kilometres from the Hinge Zone on a 22 km structure that runs the length of their project. What this shows is that the chances of multiple Hinge Zones are real.
A few days ago they did a conference call and in the corporate presentation I saw a couple things that stood out. One is that they have the LP fault that has seen their drilling and historical drilling. But, right beside it, is another parallel fault that is roughly the same length. That fault looks wide open for potential.
Also, the two faults come together at either end. Where they are sort of their widest apart, is where GBR has found their high-grade zones. Where they come together at either end should be very interesting as well. These faults are the deep cracks that open the road for the gold bearing fluids to come up. Where faults have bends or intersections are often where the plumbing system is ideal.
Speaking of interesting targets, I took their map with the model of the faults, and then looked at the same spots on Google Earth, and you can see it in the topography. What is really interesting is that you can also see crosscutting faults that intersect the big LP fault. One of those areas is right where the Hinge Zone is located and another is at the recent discovery. It looks to me like there is a bunch more of these junctions still to be drilled.
They have the realistic makings of the next big Red Lake mine like the one that took Goldcorp from a junior in the late 1990s to a major gold producer of high margin gold.
As I cautioned in my last write up about them that it was oversold and a good point to take a trading position. Recently, from around 10 days prior to news until after the news, the stock has gone straight up. Nothing goes straight up forever, it is looking overbought and a good time to lock in gains to load up with some cash for the next dip.
Westhaven Ventures (WHN.V) was a good pick that I wrote up a few times at around mid 70 cent range. It went much higher to hit highs of $1.43. I dropped them as a pick when they were at 93 cents and they currently sit at 69 cents. I see troublesome action in the chart including a death cross that should have shareholder concerned.
Initially I liked them because of the high-grade gold they hit, as did the market. But, in these epithermal veins systems, one needs to pay attention to where you are in the system, and faulting is another issue.
It’s like a boiling pot of water, if the entire system is intact, near surface you will be at the top of the system where it is lower grade potential. But, to get the juicy grades in an epithermal system, you need to hit the boiling zone of the system. Erosion or faulting can cause issues because it could cause the boiling zone to be uplifted and the rest of the system is eroded away. Which means size will be an issue. Sure the grades look awesome when you are in the boiling zone close to surface, but, to make a mine you need grade and size.
My concern for them is that each time they do more drilling it seems to reduce the potential for size. It is looking like it could be something that is small and high-grade. I will keep watching for them to answer the question about size by step out drilling or new discoveries.
At its current valuation, I would not own this stock. I think in the near term, you will have a chance to buy it cheaper as a complete round trip is in play for the stock.
Walker River Resources (WRR.V), is a member of the Allan Barry Reports website sponsorship program, prior to that they were a pick and I bought stock in them when they were around 11 cents in February. As you can see in the stock chart below, until February, they were a flatlining patchy trader that came to life due to an impressive high-grade gold discovery in Nevada.
Since then they peaked like almost every gold stock. But, there are a couple key points to highlight. They have not given back as much of their gains as most of their peers, showing solid relative strength. Since the stock pulled back, it has been going sideways with an upward bias. And has been gaining strength as they came into and started a new drilling program.
From a technical perspective, it is very bullish that the pullback was on much lighter volume than the runup on the discovery. We are also seeing both the short and long term moving averages going up. It also doesn’t want to trade under the short term moving average.
All of these bullish technical indicators seem to be tracking the new drilling program and the potential to deliver strong drilling results. I’m not sure how many holes they will do and the order of sending them in. The next big news for the company will certainly be on the drilling results and they should be right around the corner. Based on the recent drilling, I think they have a high probability to deliver excellent drill results.
An area that I’m very excited about is at the bottom of the mountain, where it meets the Lapon Canyon, there is a spot where crosscutting structures intersect. The main fault is the Lapon Canyon, on the side with the discovery and historical mining a structure goes almost to the top of that mountain. On the other side of Lapon Canyon is another mountain where that same fault continues.
These faults look to be part of an entire system. The faults going up the mountains are kind of like your ribs, and the Lapon Canyon is like your spine. Where the faults in the mountains meet at the bottom at Lapon Canyon looks to have the potential to be the vent for the entire system.
I don’t say that a company has multi million gold ounce potential lightly. The size of the faults and the grades hit, show that it is a realistic estimate of potential. As you can imagine, I’m excited about the potential for my sponsor, it looks like the stock chart is at least feeling moderately bullish. Let’s see where the drilling takes us.
Final chart for today is Advance Gold Corp. (AAX.V), where I’m the CEO, which has been a flatliner for several months. There are some key aspects about the chart that suggests we have the potential to fulfill the old stock chart adage the longer the base, the further in space.
One of those is our share structure. On a fully diluted basis we have 35 million shares, most juniors these days are at around 100 million. I own around 10% on a fully diluted basis, our chairman owns around 20%. We have another group of shareholders close to directors with around another 20%. There is also a group of investors in Quebec with around 20%. So, collectively, whether on a current issued or fully diluted basis the public float is small. With our current share price, we have less than a $3 million valuation.
On the project front. In Kenya we have a 14.5% interest in a joint venture with Acacia on the Kakamaga project which is beside Acacia’s 100% owned ground. It is on the Liranda corridor and we have around two thirds of the corridor in the joint venture. Past drilling on the JV ground hit one of the two highest hits on the corridor.
Acacia is the former Barrick Africa and recently Barrick made an offer to take them over completely. This is big news for us as it could make Barrick our joint venture partner and everybody knows they aren’t interested in small.
Based on extensive drilling on the Acacia 1.2 million ounce 12 g/t gold resource, it looks like to make it bigger, they will have to move over to the JV ground to grow it significantly. If we are diluted down to a 10% interest, which requires $1.7 million worth of work, we then are converted into a 3% NSR interest. It will be exciting to see how all this plays out.
At our key Mexico project, Tabasquena, we have hit a cluster of epithermal veins, but, not the boiling zone yet. As I mentioned earlier when discussing Westhaven’s epithermal veins, it is important to understand where you are in the system. The signs are that we are at the top of the system. In the boiling pot of water analogy, we are still in the bubbles at the top of the system. Next we have to target deeper for the boiling zone. We are working on a couple things that will help us target deeper drilling. So stay tuned for news from this project.
Our other project in Mexico, Venaditas, is also very compelling as it is right beside Teck’s big San Nicholas VMS mine. In the same kind of rocks, with a key structural area with a large geochemical anomaly beside it. As we are better funded, I expect good things from this exploration project as well.
When it comes to people, the leader of our exploration efforts is Senor Jose Parga, who is one of the foremost experts on Mexican geology. As he ran the geological survey of Mexico for over thirty years. He picked both Tabasquena and Venaditas and is helping us look for more ground.
Another important factor to consider is that in 2020, the MAG Silver mine will go into production. It is around 70 miles from our ground, in the same kind of rocks and is an epithermal vein system.
Same thing with the veins being mined nearby that are owned by their partner Fresnillo PLC., which surrounds the joint venture. It will make Fresnillo and MAG number one and two of the lowest cost silver producers in the world. They will be promoting the fantastic geology of the region and the low costs. This should all bring serious attention to our efforts as we have the same outstanding geology and low costs on our projects as well and aren’t far away.
I close this part on Advance by saying. I think I have made the case that we are one of the most underappreciated exploration companies, considering the quality of our projects and current valuation, in the junior space.
There you have it, my current view on the charts for the USD and gold, plus, some stocks that I follow closely.
Check out the companies above and feel free to share it among your friends that follow the gold exploration sector.
All the best,
Allan Barry Laboucan
Allan Barry Reports
Advance Gold (AAX.V)
P.S. my reports are for information purposes only, before making any investment decisions it is important to do your homework and speak with your financial advisers.