GMO General Moly – Abnormally High Volume Game Changing Event

Now that was an easy decision on what to write about this weekend. Going through my scan results GMO – General Moly an AMEX listed Molybdenum stock caught my attention. This is really simple stuff. No secrets involved, just plain and simple objective technical analysis. Throw in some knowledge about market psychology, some common sense and you will come to the same conclusion. Simply click on the corresponding stock’s chart on my public list in order to verify what I am talking about. No second guessing. For more Molybdenum stock trading ideas and in order to keep an eye on sector strength check the Molybdenum Sector Overview Chart. The chart contains the following companies:

• TC – Thompson Creek Metals
• GMO – General Moly
  
• MOL.TO – Moly Mines
• ML.TO – Mercator Minerals
• ROK.V – Roca Mines
• TTQ.V – TTM Resources

GMO – General Moly printed a monster volume day. I only spent a few minutes going through the latest GMO news release:

LAKEWOOD, COLORADO – March 5, 2010, General Moly (NYSE Amex and TSX: GMO) announced a significant investment and strategic relationship with Hanlong (USA) Mining Investment Inc., a wholly-owned subsidiary of Sichuan Hanlong Group (Hanlong), that is anticipated to provide full project funding for the Company’s 80% owned Mt. Hope project. Highlights of the transaction include:

• $665 million bank loan from a Prime Chinese Bank to be procured and guaranteed by Hanlong at an anticipated rate of Libor plus 2%-4%;
• $80 million equity investment in General Moly through the purchase of 25% of the Company’s fully diluted shares, partially contingent upon completion of the $665 million bank loan;
• $20 million bridge loan to assist in Mt. Hope project restart, repayable from the proceeds of the bank loan; and
• A long-term molybdenum supply off-take agreement for Hanlong from Mt. Hope production.

The reaction to the news is what counts. The chart is unambiguous. The market participants loved the news. This is a classic game changing event type of news. We have a new MMR – McMoRan Exploration type of stock. Here’s what I plan to do:

• I will patiently wait for a consolidation pattern
• I will then try to buy a position just before the stock actually breaks out again
• The goal is to be in before the second buying wave of the momentum trader crowd hits
• Looking at a longer time frame chart a GMO price target around 6.50 USD$ looks likely

Here is a summary of what I am looking for with break away gap up plays:

• Rather long base.
• Game changing news / fundamentals.
• Abnormal volume surge.
• Gap up.
• Thrusting move.
• Consolidation pattern. Preferably an ascending triangle.
  
• Story stock potential.
• Potential to attract the momentum trader crowd.
• Market capitalization that leaves a lot of room for additional price appreciation.

Up-to-date GMO – General Moly chart on my public list.

One could argue that buying a position on Monday is the thing to do. I might just do that – not sure yet. The best way to stay emotionally detached though, is to wait for the stock to stabilize and digest the high percentage up-move. Buying right now is a pure momentum trade. Buying near the end of a consolidation pattern adds pattern pressure, avoids getting trapped in a blow-off volume type pattern, gives you the opportunity to clearly define risk levels and allows for sound stop loss computation. The main advantage though is that you are eliminating greed and avoid cultivating a ‘jump right in’ trading mentality.

The answer to successful trading cannot be found in any coach, book, or system. Success is something that is cultivated over time, with directed effort.
– Brett Steenbarger

Have a great weekend!

From GMO – General Moly’s website:

General Moly, Inc. (NYSE AMEX and TSX: GMO) is in the business of exploring, developing and mining molybdenum properties. Our near-term corporate objective is to profitably develop and operate the Mt. Hope property, in which we own an 80% interest, and to continue our evaluation of the Liberty project, which we wholly own. In the short-term, we are focused on raising capital sufficient to complete the development of the Mt. Hope Project on schedule. By the time both these projects are in production, General Moly will be positioned as the world’s largest primary moly producer.