Risk vs Reward – LSTG
BullWarriorStocks Newsletter
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Good Morning Traders, The opening bell is right around the corner, so I`ll keep this short and sweet so I can get onto the actual information. Whether we like it or not, Gold has begun trending back upwards as the dollar continues to get whacked by the printing presses of Mr. Bernanke. With that being said, there are quite a few precious metal companies who keep popping up when I run my scans.
The one I talk about below caught my eye due to the fact that in the short run, it has been very strong, but just had a pullback day which leverages the Risk vs Reward set-up into our favor now. Buying after a stock has had four straight green days is pretty risky, but now that we`ve seen some profit taking and a pullback, this now alters the set-up for us.
Alright, enough is enough, let`s just get talking about things…
Lone Star Gold, Inc. – LSTG LSTG is a gold exploration and development company based in Albuquerque, New Mexico.
The Company`s exploration approach is strategically focused on proven, stable precious metal regions in America and Mexico.
LSTG has a 70% Working Interest in concessions covering 800 hectares in the La Candelaria project in Chihuahua, Mexico, which the Company is evaluating to determine the potential sites that represent the best potential for silver and gold deposits.
LSTG also has an option to purchase a 70% interest in the Ocampo Project, a 570-hectare gold-silver project in Chihuahua State, Mexico.
Two things stick out to me (excluding the technical chart) about LSTG that make it an interesting play.
The first aspect that catches my eye, is the amount of land LSTG have ties to. With mining, there are no guarantees, however, the more land you have to work with, the better your odds of finding something are. I know that is obvious, but many miners I come across barely have any land they have connections to, so although yes, they could still get lucky and find something, the odds aren`t exactly in their favor so I prefer to stay away from those types.
The other big question that must be answered in mining plays is “what action is being taken”.
Sure paperwork can be filed to get your fingers on some land, but unless further action is taken such as actually looking for Gold/Silver, then the only real value is hoping the land appreciates in price.
This brings me to the second aspect that caught my eye. On Monday (Nov. 7th), LSTG announced that they have commenced drilling at one of their properties. As stated in the PR, first stage drilling on the Company`s Mexico-based La Candelaria gold-silver project will commence today. Lone Star has a 70% Working Interest in the project, which comprises ~1,976 acres (~800 hectares) Also stated in the PR is that the lab results are due back in mid-December (not too long to have to wait). What will the results bring back Your guess is as good as mine, but the point I`m trying to make is at least the company has begun to take action.
So for you speculation players out there, this sounds like something right up your alley. The one dynamic that provides a hedge is, in a worst case scenario where the results come back as not so good, at least LSTG still has other land where they can look. This isn`t a “do or die” drill as they`re just getting started.
Let`s take a look at the technical chart.
Like I mentioned at the beginning of the email and as you can now see, the price had experienced four straight days of green before yesterday`s pullback.
The word “pullback” carries a negative connotation as it implies the price was red on the day. While this is 100% true, just because a stock is red on the day doesn`t mean the world is over. Sure, in a perfect world every day would be green, but that`s not reality. Pullbacks are healthy for a chart assuming the key levels of support can hold strong.
Now, if a “pullback” turns into a REVERSAL, that is where is it a justifiable negative thing. The good news is, monitoring if this transition is taking place is easy to see if you know the support levels to watch.
Let`s apply this to LSTG`s chart. It `did` pullback yesterday; however, as you will soon see, none of the key support levels have been violated, so at this point in time, it falls into the `healthy consolidation` category.
There are three areas of support that really stick out in my mind. What support should be your primary concern I can`t answer that. You need to ask yourself the question, “what is my strategy going into the trade” in order to determine what support you should be watching like a hawk.
The three areas of support:
1) $.93/$.94 (gray circles) – as can be seen, the price has bounced from these levels twice before back in late September/early October.
2) 10 Day Simple Moving Average (pink line) – this is the line that is monitoring the short term trend of the chart. Clearly at this point, the short term trend on the chart is bullish as the 10-SMA has an upwards slope to it. As the blue circle shows, it also proved to be a solid entry back a few days ago.
3) Trendline (brown line) – by connecting the previous lows ($.60 and $.67), we get what I am calling the MUST HOLD support. In order for the overall trend to remain bullish, this support line needs to hold. Obviously the price is well above it right now, but if your strategy is more of a long term swing trade or long term hold, this would be the support level you want to monitor.
On the resistance side of the coin, the 50-SMA (green line) is what seems to be the problem at this point. No big surprise though, in the world of technical analysis, it isn`t uncommon to see the 50-SMA temporarily knock down the price. As long as the chart can go through a healthy consolidation, it is only a matter of time before the 50-SMA becomes the newest support level on the chart.
As always, these sort of Risk vs Reward set-ups don`t work unless you are a disciplined trader, so please keep that in mind! With both the attractive chart set-up AND the fact that this company is TAKING ACTION, be sure to get LSTG on your radars and follow your trading rules! ~~~~~~~~~~~~~~~~~~~~~~~~~~
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