RIC Richmont Mines – Needle In The Golden Haystack

by Olivier on November 17, 2014

The beaten down gold mining sector is showing its first signs of life. Odds are we’re witnessing the early stages of an intermediate term bounce. Maybe this is the start of something much more meaningful. Let’s not get carried away though. The downtrend is still firmly in place, so ultimately new lows cannot be ruled out. But right now this very much looks like a tradable bounce.

When stocks rebound from extremely oversold levels and when sentiment cannot possibly get more bearish, the best performers tend to be the most beaten down stocks. Employing this strategy is a high risk endeavor. After all there is a reason why a stock got beaten badly. In fact, the biggest risk is that the one stock you buy might not make it or will experience that dreaded one last gap down that completely destroys shareholders.

Here’s the good news: You have 3 ways to avoid that risk when trading a bounce:

  1. You buy an ETF like GDX or GDXJ, thus avoiding single stock risk.
  2. You buy stocks in firmly established uptrends near or at all time highs.
  3. You buy stocks that have already bottomed out and are establishing new uptrends.

Here’s where RIC – Richmont Mines comes into play. It belongs to the third category described above. The stock has put in a thrusting move on huge volume, then proceeded to build an ascending triangle, a very bullish consolidation pattern. We can see a series of higher lows and relentless accumulation during that consolidation phase. Today RIC put in another huge volume day indicating that the consolidation is now most likely over.

Click on the RIC chart to enlarge:

A few more important bullish factors to consider:

  • The company has no long-term debt
  • RIC is a profitable gold producer
  • It is operating in Canada, a safe jurisdiction
  • The stock bottomed out much earlier than its peers
  • RIC got rid of its CEO after the brutal decline and the new CEO took over today

The combination of an extremely bullish technical set-up and the announcement of a new CEO lead me to believe RIC – Richmont Mines right now, is offering one of the most promising trading opportunities. I bought the stock today.

A successful speculator bases no moves on what will happen, but reacts instead to what does happen. – Max Gunther

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