GoldQuest Mining Corporation (GQC, TSX-V) has made an impressive move over the past 5 trading sessions, climbing from a low of 14.5 cents September 24 (last Friday) to a high of 24.5 cents this week. We were looking for a modest pullback and it happened today as the stock fell to a low of 19 cents before strengthening toward the close and finishing at 20.5 cents. Today’s market weakness gave BMR the opportunity to add GoldQuest Mining to its “Portfolio” which now consists of 7 stocks – Gold Bullion Development, Richfield Ventures, Seafield Resources, Sidon International, Colombian Mines Corporation, North Arrow Minerals and now GoldQuest Mining. Over the past year the BMR Portfolio has gained a whopping 156% (this is for 8 stocks in total including the 2 that we deleted in August, Kent Exploration and Greencastle Resources).
This morning we stated the fundamental case for GoldQuest. Tonight we examine the technical condition of this stock which is extremely bullish: There has been a recent volume breakout; all moving averages are in bullish alignment; and the stock has come out of a 2-year consolidation. BMR’s technical analyst provides his insight into GQC below:
John: Today GoldQuest opened at 21.5 cents, its high for the session, drifted down to a low of 19 cents and then closed at 20.5 cents for a loss of 1.5 cents on the day on total CDNX volume of 843,000 shares.
Looking at the 6-month daily chart we see that on June 18 GQC reached an intraday low of 9.5 cents and from there proceeded to climb to a high of 19.5 cents, culminating in a black candle on July 4. The significance of a black candle at the end of a run is that of exhaustion. On that day there is a lot of buying pressure initially which causes the share price to gap up at the open but the sellers come out in force and through the day drive the price down. The black candle is usually a very reliable indicator that a run-up is finished, at least for a while.
GoldQuest then gradually declined to a base low of 10.5 cents and then took off to another high of 18.5 cents on heavy volume September 17. Thus, between July 4 and Sept 17, the stock made a well-formed cup (mauve lines) pattern that is ideally “u” shaped. Then the share price started to decline for a few days on low volume to create a well-formed handle (downsloping blue and green lines) for the cup. Note that the handle only retraced about 50%, thus the pattern is very valid.
On Friday, September 24, GQC broke above the top blue line of the handle (long white candle) to close at 17.5 cents near the top of the handle on high volume. On Monday, the stock gapped up (rising window) to start at 19.5 cents and proceeded to trade in a range of 19 cents to 22 cents on volume of nearly 4 million shares (the second highest volume ever for this stock).
Monday’s trading was extremely significant for this was a well defined breakout from a 2-year consolidation.
Tuesday saw a further rise to a high of 24.5 cents on a much reduced CDNX volume of 1 million shares. Wednesday saw a pullback from a high of 24.5 cents to a low of 20.5 cents with a closing price of 22 cents. Today the pullback continued, as expected, with a low of 19 cents right at the top of the window. With this continued pullback we considered it to be an opportune time to officially add GQC to the BMR “Portfolio”. The Volume, my favourite indicator, shows that when the bulls are in town, so to speak, they are in force and the stock moves up but there are not many bears around when the stock declines. High volumes should be in the direction of the trend. This trading pattern has created a rising window, a bullish signal. The Japanese advise, “Go in the direction of the window” - this makes sense as windows are continuation signals. If the bulls are willing to skip several price levels and pay higher prices for a security then they must be in control. This is a rising window, therefore the continuation direction is up.
The rising window is marked on the chart as two short green horizontal lines. They are green because the total space of the window is considered a support. For this the Japanese say, “Corrections stop at the window”. Note that on 3 occasions the stock price has tested the top of the rising window and the support has held. I have shown the Fibonacci levels (blue lines) with 10.5 cents at the 0% base and 19 cents at the 100% level. This is the seed wave. Please note the Fibonacci tool does not show 3 places of decimals. The theoretical Fibonnacci target after the breakout above 19 cents is shown as 23 cents. The next Fibonacci target by calculation (not a BMR price target) is 33 cents - (seed wave range x 2.618) + 10.5 = (8.5 x 2.618) + 10.5 = 33 cents.
Looking at the indicators: The RSI has dropped out of the overbought region to the 67% level and is pointing down, looking to continue to unwind the overbought condition until it reaches the support trendline (orange).
The Slow Stochastics has the %K (black line) crossed below the %D (red line) at 78% and is pointing down, also looking to continue to unwind the overbought condition.
The ADX trend indicator shows that the +DI (green line) has peaked and is in decline but it’s still above the -DI indicator which shows the trend is up. The ADX trend strength indicator (black line) is rather high at 42 and is flat, showing that the bullish trend strength has stabilized and confirms the decline of the +DI. As we have stated before, the +DI usually peaks before the ADX line.
Outlook: The break above the handle put the stock in a slight overbought position which by today’s trading indicates that it has declined to the neutral region (area between overbought and oversold). The overbought condition may continue to unwind over a brief period but this stock is clearly in a powerful new uptrend after 2 years of consolidation.