John: On Friday, Richfield Ventures (RVC, TSX-V) opened at $4.06, its low, then climbed to its high of $4.80 before closing at $4.70. It gained 65 cents or 16% on CDNX volume of 269,000 shares, a strong move up on relatively light volume. The stock, which BMR introduced to its readers just over a year ago at $1.20, got a well deserved buy recommendation Friday from GMP Securities which has a 12-month target price for RVC of $11.10. GMP sees a 5+ million ounce Gold deposit taking shape at Richfield’s Blackwater Project in central British Columbia, something we’ve been speculating about for some time. Friday’s closing price of $4.70 gives Richfield a market cap of $202 million.
Looking at the 6-month daily chart we see that in mid-November, RVC moved up from $3.00 to $5.00 in 6 sessions – an impressive move. Then over the past 2 months the stock has traded in a horizontal trend channel between $4.00 and $5.00. The base of the channel at $4.00 coincides with the Fibonacci 50% retracement level indicating this was a perfectly normal retracement. The $4.00 level (green horizontal line) provides strong support.
The surge on Friday was strong as Richfield plowed through its SMA(50) without any trouble. Last Monday, January 24, there was an obvious shakeout. The price dropped to a low of $3.63 but the volume was only 100,000 shares, indicating how tightly this stock is held. On Tuesday there was a news release with more impressive drill results and on that day and Wednesday the volume rose to 361,000 and 378,000 shares, respectively, with the stock reaching a high of $4.19. Thursday was a quiet trading day due to the plunge in the Gold price with RVC closing down at $4.05. As we have seen, Friday was a different story.
What did the volume tell us last week? The first thing was the low down volume on the shakeout (Monday) showing very few shares available at the low price. Again this occurred on Thursday. The next point to notice is the two high volume days Tuesday and Wednesday with little movement in the stock. Very often volume will increase 2 or 3 days in advance of a stock move – a good sign to watch for. Another point to note is that the volume on Friday when the stock moved up over 16% was less than the high volume days. This indicates there are still very few shares floating at these levels. Yes, volume is a very informative indicator.
The measured near-term target is estimated by adding the depth of the channel to the top level (1 + 5 = $6.00). The next major Fibonacci target level (blue set) is shown at $6.25 (this is not a BMR price target as we don’t give price targets but a theoretical Fibonacci level based on technical analysis).
Looking at the indicators:
The RSI has completely unwound its previous overbought condition. It’s currently at 62%, pointing up and looking very strong – bullish.
The Slow Stochastics has the %K (black line) at 59%, pointing up and above the %D (red line) which is also pointing up at 44%. This move was from a very bullish “W” formation at the 20% level.
The Chaikin Money Flow (CMF) shows that buying pressure is increasing – bullish.
Outlook: Richfield is looking very strong on relatively low volume. If volume increases, the stock will have no trouble breaking above the resistance at $5.00.
Note: The writer does not hold a position in RVC.