A Stock Price Melt-up

With the recent break with long-term technical trends under above average volume, there appears to be a lay-up for a stock price melt-up.

Naked shorting has been the practise on this stock throughout the crash. It was like shooting fish in a barrel since the high in 2007. So for a period of three years, day after day the same brokers would come back and short every rally confident that the share price would decline. What has changed is that there are no more sellers. They need panicked sellers for their strategy to work. The panicked sellers of shares who dumped their share positions and gave the naked short sellers a major advantage are gone. They are simply not there any more.

Now, the naked short sellers are fighting the tape the whole way with demonstrably deep pockets, not entirely aware of how many people are engaged in the same practise. Each and every naked short seller is likely to believe they are unique in their trading strategy. But this time, it's become a crowded trade, and each one is vying for the exit. By my guess, these positions run into the millions of shares, and that there are half a dozen of these brokers involved in the trade.

The month of May will make an interesting trading month, indeed. The longs are now very well positioned, whereas they were once at a great disadvantage, while the naked shorters, once with a very strong speculative advantage, are now literally gambling at a casino of their own making.

As Peter Grandich would say:

http://www.grandich.com/2010/04/gold-nears-1170/

Volume By Price Analysis

Now, a naked shorter might say technicals mean absolutely nothing and price is everything. So ok, let's look at the volume by price analysis on the monthly chart. As suggested by this chart, the volume by price analysis says that there will be very little resistance to the upside.

Once 36¢ is passed to the upside, then a measured target value can be contemplated based on the technicals.

supersize: http://www.flickr.com/photos/11747277@N07/4567453087/sizes/o/

Thanks to Slope Of Hope for their contribution on this subject:

http://slopeofhope.com/2010/04/utilizing-price-by-volume-bars-for-trade-strategies-and-ideas-by-leisa.html

The Daily Chart

The daily chart looks a little more dramatic, though the technical analysis is now proving sound. A measure target can be anticipated, but moreover, a speculative target may be in the cards. So basically whatever downside risks may be inherent in a junior stock like this, for the moment the risks are overwhelmingly on the side of going short here. The volume by price analysis looks a little different here, because the monthly chart depicts a much longer time period. Traders have yet to jump in with both feet, as the 50-day MA has now crossed the 200-day MA:

supersize: http://www.flickr.com/photos/11747277@N07/4567482959/sizes/o/

Small Cap Garden A Little Less Fertile

Why, because its a swamp of paper detritus and wild expansions of share floats? An article in the National Post had the following to say:

"LAKE SHORE GOLD CORP. (LSG/TSX).

The managers recently exited this position. Potvin notes that while Dundee trades at similar levels, its cash flow will be nearly three times as much than Lake Shore's.

While it is operating in one of the world's best jurisdictions, Ontario, every miner in Canada is being impacted by the higher dollar.

"For everybody in Canada, the gold price is going up but very slightly," says Potvin. "The Canadian dollar is going up very fast, so the margin of the Canadian producer right now is getting squeezed."

While Lake Shore has an impressive growth profile, he notes that the company has consistently reduced its 2010 production guidance due to the need to spend more time drilling."

http://www.financialpost.com/story.html?id=2931803

http://tinyurl.com/325nr5v

Conclusion: If this happens, grade is not up to snuff and requires a higher gold price to be profitable. As a matter of fact, there are numerous producers in the gold space with billion dollar plus market caps and very little profit. Moreover, they have swindelously huge floats. I would say that a junior producer with an exploration upside can burnish its image by consolidating its shares, thus making itself a paragon of conservative investing rectitude. Something that is sorely needed in the junior gold space.

Another Scenario That Fits The Story

Now people will be mad at me because I am personally of the opinion that the company is deferring to bond holder's interest rather than the shareholders, because of an equity swap position held in case the company fails. Any time there are derivatives involved, that makes for zombie behaviour and bad business decisions. But there is much, much worse out there that is a complete disservice to shareholders and favours management. In light of taking the company private, a reverse split is a godsend.

Taking It Private Calls For Public Scepticism

http://tinyurl.com/2dfoqb5

Conclusion: For my money, a reverse split is a comparatively good strategy to make the company available to investors in very short order.

An Overlooked Detail

A detail that is much overlooked are what comparables there are to deposits in the La Ronge gold belt and known deposits in the Val d'Or greenstone belt. The geology is almost identical between the two, and the smaller deposits in the Val d'Or almost identical to the deposits in La Ronge.

Not well known is that Golden Rule, one of the former players in La Ronge, had assessed property in the district before moving to La Ronge. The property they were working on was the former Midway Malartic mine. (source: historic data from the technical report on the Midway Malartic mine from North Star Mining)

Golden Rule set up shop in La Ronge and decided to put the Komis deposit into production. So it then makes a powerful case for comparitive analysis then with the Val d'Or district when you have a former mine that has been placed back into production and one that barely got going and suffered the consequences of adverse economics in the bullion markets.

I believe you can't be far wrong when comparing the Komis mine with the Midway Malartic mine, as the grade is the same. And bear in mind that Komis is the lowest grade prospect in La Ronge, and that there are FIVE areas where mining is proposed in La Ronge:

http://www.nsmgold.com/midway.html

GDX vs. Gold Ratio

This was posted last February to stockcharts.com Don't Ignore This Chart blog.

http://blogs.stockcharts.com/chartwatchers/2010/02/gold-miners-vs-gold-futures.html

It just so happens that the very same thing that's occurring in GBN.V shares is occurring in the GDX vs. Gold ratio. There's a strong confirmation signal building in the GDX vs Gold ratio just this week, and we're only just getting started:

supersize: http://www.flickr.com/photos/11747277@N07/4567593121/sizes/o/

Found On The Web

""In the 1930s, the United States was in a situation that satisfied the conditions for a liquidity trap on this definition. Over 1929-1933 overnight rates fell to zero, and they remained on the floor through the 1930's. According to Krugman (1998), U.S. interest rates were "hard up against the zero constraint" (p. 137) in this period. At the time, however, many economists held a different view.

Keynes (1936, p. 207) and his followers did not think a liquidity trap was binding in the mid-1930s. They always described the liquidity trap in terms of long-term interest rates. Once short-term rates had been driven to zero, they argued, short-term bonds were equivalent to money, but there was still a demand schedule for money broadly defined reflecting its usefulness as an asset free of interest-rate risk (Keynes, 1936, p. 201; Hicks, 1982, p. 263), so a central bank could depress long-term rates by increasing reserve supply through open-market operations in longer-term bonds."

http://eh.net/Clio/ASSAPapers/Hanes.pdf

Conclusion: What this implies is near zero, or perhaps negative overnight rates and lower yields for long term bonds going forwards.

-F6