I hold some Allied Nevada Gold shares which I bought at around $32. They are currently trading at around $9.00 and dropping a few cents everyday. Should I be buying some more to average down my cost or should I sell and take a loss? Where do you see the stock going in the next 6 to 12 months?
Your opinion will be very much appreciated.
Thanks for the assignment.
Allied Nevada Gold Corp. has baptized investors in their tears. To answer your question on averaging down, I don't recommend it. You have already taken a bad beat on your original investment you can leave it there in hopes of a recovery but don't chase bad money with good. Use the money you would have put into more AVN and buy a blue chip divided paying stock to achieve a better balance with your assets. With respect to how to manage your loss, if you have capital gains to offset then you should consider a tax loss sale.
A study of the charts will provide guidance on how best to proceed and will provide some tools that you should be using to ensure that you don't step on another bear trap! The three-year chart illustrates the steep decline that started in the fall of 2012 as the price of gold hit resistance near $1,800 and began an aggressive decline. The entire precious metal sector has been in the penalty box but adding to the woes at ANV was the decision to phase in the development of the facilities at their mine in Nevada.
Worth noting for future use are the sell signals generated by the RSI and the MACD as the stock rolled over in the fall of 2012, the break below support along the 50- and 200-day moving averages, the death cross that formed in January of 2013, and the break blow support at $25.00. All together that is one ugly chart!
The six-month chart isn't offering much encouragement to add to your position. The downtrend line is very well established and every attempt to move higher has failed. The RSI and the MACD are also not indicating that the trend is about to reverse itself. In terms of an outlook for the next six to twelve months it is not something that I can help you with. The analysis provided is essentially a snapshot of all the information available today on trend, support, and resistance. What I can tell you is that the trend is down and the support is weak. Act accordingly.
Make it a profitable day and happy capitalism!
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