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Graph (Hemera Technologies/Getty Images)
Graph (Hemera Technologies/Getty Images)

SCHIZAS’ MAILBAG

Is Belo Sun Mining oversold? Add to ...

Hello Lou: Could you give me your opinion on Belo Mining? Just wondering if this is oversold. Thanks, Rick (P.S. Yes, as a matter of fact, I do have a retirement plan: Fishing.)

Thanks for the assignment. When it comes to fishing, I am always reminded of this great quote: “Give a man a fish and he will eat for a day. Teach a man to fish and he will spend the day drinking beer and swapping tall tales with other fishermen and bring nothing home but a sunburn.”

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Belo Sun Mining Corp. is a Canadian mining company with operations in Brazil. The main focus of enterprise is developing the Volta Grande project, which has a resource estimate of 4.7 million ounces of gold.

The research conducted on your behalf indicates that Belo has been in a steep selloff since the beginning of 2013 and, as a result, has given up over 65 per cent of its value. A study of the charts will form the basis of my analysis.

The three-year chart is one ugly picture for those that have held onto Belo since January. Although a grizzly drop, it wasn’t an overnight case of panic selling. The retreat has transpired over an eight-month period providing lots of opportunities to hit the silk and preserve capital. The breach of support at $1.60 and the 50-day moving average in January were the first signs there was trouble in River City. By February, the stock melted through the 200-day moving average and support at $1.30.

A death cross surfaced in March and from there it was a case of resistance along the downtrend line, the 50-day moving average and a series of lower highs and lower lows. All of these indicators in concert are screaming sell.

The six-month chart provides a close up of the resistance along the 50-day moving average that has dominated trading since March. In addition, the chart illustrates opportunities to trade for profit in a selloff. You asked about the stock being oversold and if you examine the RSI it signalled an oversold posture in mid May when the stock was trading at $0.46. Buyers came in and took the stock to $0.79 by mid June, but that is when the stock hit resistance along the 50-day moving average and pulled back to a 52-week low of $0.395 on July 10. Once again the RSI signalled an oversold situation that enticed buyers to drive the stock to $0.55 by late July where it met resistance and began a retreat.

BSX has had its target price cut by a number of analyst since the beginning of the year, but the fundamental problem is that the price of gold has been weak and that will always drive the miners lower. Until there is some firming in the price of gold I would say Belo is only for experienced traders who are comfortable trading in an aggressive decline.

Make it a profitable day and happy capitalism!

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