Hi Lou,
I value your analysis. I would like to ask your view of Labrador Iron Ore Royalty Corp., both short term and long term.
Thank you very much,
Kaissy
Hey Kaissy,
Thanks for the assignment and your kind words.
Labrador Iron Ore Royalty Corp. (LIF) owns a 15.1 per cent interest in the Iron Ore Company of Canada and receives royalties and commissions on all the iron ore produced, sold, and shipped. The stock has suffered as the forecast for global economic growth has waned. There were a number of analysts who put up warning flags starting back in July of 2014 as ratings were cut or low expectations reiterated. LIF has also been caught up in a law suit brought by The Innu of Maliotenam and Schefferville naming The Iron Ore Company for failing to compensate them for mining operations on their territory.
A scout of the charts will help identify how best to proceed with this stock.
The three-year chart illustrates the waterfall decline that started in late August as the shares breached support at a number of different price levels. The stock hit resistance at $31.00 through the month of August then started a steady decline breaking below support at $30.00, $29.00, $28.00 and most seriously $27.00. Below $27.00 there were only tiny ledges of support at $26.00 and $25.00 which unfortunately didn't hold, leading to more aggressive selling.
The RSI on the six-month chart indicates that LIF has been oversold for over six weeks and that every attempt to move higher has been met with a bout of selling. The MACD and the RSI generated sell signals in August and by early September a death cross surfaced as the shares broke below $28.00.
There are no clear signs that we can expect a trend reversal in the near term. However it is worth mentioning what looks like a double bottom near $19.00 which is a call for continued surveillance. Should we pick up other signs of a trade setting up LIF could run to $22.00 without much resistance.
I have to imagine that you are bottom fishing this stock but keep in mind that there is an established downtrend in play, no clear indications of a trend reversal and a death cross that has to be addressed. And that's just on a technical basis. On a macroeconomic basis global economic growth is slowing down and that doesn't do much to drive demand for iron ore. If you have an appetite for risk make an initial investment at these levels and collect the dividend.
Make it a profitable day and happy capitalism!
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