This junior miner needs constant surveillance

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Dear Lou,

I really enjoy reading your articles and was hoping to get your take on Probe Mines. I bought a position in Probe Mines a few years ago when it was 35 cents. I sold part of my position to recover my costs and have been sitting on the rest for the last couple of years. I was wondering if you see any better upside for this stock.

Thanks,

Tbone

Hey Tbone,

Thanks for the assignment and I'm glad that you enjoy my work on behalf of investors just like yourself.

Congratulations on a great pick! You have really added to your wealth with your investment in Probe Mines Ltd. PRB is an exploration company and as such the stock moves on drill results of which there have been more and better reported recently. On Feb. 10, 2014, the company reported drill results from their Borden Gold Project located near Chapleau, Ontario with some bonanza grades which pushed the stock up over 11 per cent when the news hit the wires.

PRB is focused on the Borden project which has indicated reserves of 4.3 million ounces of gold but has other projects in development as well. A review of the charts will help identify if there's more upside to the current move.

The three-year chart offers a number of patterns worth discussing. The current advance started in April of 2013 when the MACD and the RSI signalled a buy off the 52-week low at $1.10. A golden cross surfaced in August of 2013 near $1.80 indicating that the advance had more to give. The momentum indicators generated another buy signal in December when the shares were trading near $2.10 and the last one in February when the shares traded near $2.50. Nice get as we used to say in Calgary!

The six-month chart highlights the sell signal generated by the MACD and the RSI in January followed by the February buy mentioned earlier. At the moment the RSI is indicating that the shares are overbought and the MACD looks to be starting to turn lower. What is also evident on this chart is the base that was built at $2.10 from September through December. The bigger the base, the better the case for an investment.

PRB is still quite a distance from mining their deposit and as goes the price of gold so goes the fortune of junior exploration companies. Having gotten your adjusted cost down to zero you only have to manage the risk to your profits. My old pal Ted Carter, who wrote " Successful Stock Market Speculation", always advised establishing a core position in a junior, taking profits when available, and adding to your position with your profits on a pullback. You might want to consider this strategy as opposed to a straight buy and hold.

Again congratulations on your gain! Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.