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Thinning volume a warning sign for Noranda Income Fund

Red flags to watch for when investing: cumbersome financial reports that relegate unusual activity to the footnotes.


Hello Lou,

What are your thoughts on Noranda Income Fund? It used to be pretty big but now no one covers it.

Best regards,

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Hey John,

Thanks for the assignment.

This will be the first time that I examine the case for Noranda Income Fund. The fund owns a Quebec-based zinc refinery which is seen as a hard-to-replace asset in the mining complex. There is a supply agreement in place with Glencore Canada that underpins the business and which expires in 2017. The question is what will the operating environment be in three years? The market capitalization for the fund is $200.24-million and the yield on distributions is 9.36 per cent. You want to keep in mind that the units were first offered to the public in 2002 at a substantially higher price and offered a more generous distribution and has at times ceased distributions.

The three-year chart depicts units that retested support at $3.40 in June of 2012 giving rise to an advance that took the price to a 52-week high of $5.61 in November of 2013. The golden cross that surfaced in February of 2013, when the units were trading for $4.40, indicated that the move had legs. The uptrend line has not been breached and support along the 50- and 200-day moving averages has been in place since April of 2013. A concern worth mentioning is the resistance that has formed at $5.40 over the last four months.

The six-month chart illustrates a tight range-bound pattern with resistance at $5.40 and support at $5.10. The RSI and the MACD are both turning lower, suggesting that the units could be on their way to retesting support. Average daily volume over the last three months is 61, 255 shares. Over the last twelve days volume has thinned out, trading below the average. When a stock moves up on thin volume it puts a caution flag on the track.

The best course of action with regards to NIF.UN would be to trade it in the range for profit until the resistance at $5.40 is cleared up.

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Make it a profitable day and happy capitalism!

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