Lepanto Consolidated A: The Next Market Darling?

MARKET Timing is an extremely difficult task, but successful traders do not actually ‘time’ the market but executes entry and exit points based on strategies derived from the technical picture, possibly in confluence with some fundamental reasons.

In the case of Lepanto Consolidated, the country’s largest gold producer, the technical picture as seen above shows of the following:

• The stock has undergone a full cycle. At the present setup it appears that the issue has broken out of its declining phase and at the moment is consolidating or bottoming out. This means the next phase could most likely be an advancing phase.
  
• Technical indicators appear to show some positive divergence meaning that while the chart is at the moment most probably at the ‘bottoming’ phase, signs of increased accumulations are beginning to emerge. As can be seen above, the higher upper window shows that the Money Flow index is rising in conjunction with a rising Chaikin Money Flow Index seen at the lower upper window.

The Chaikin Money Flow Oscillator is premised on the accumulation/distribution level. This indicator measures whether a particular security is undergoing accumulation (buying) or distribution (selling) activities. While the Money Flow Index is a momentum indicator that compares ‘positive’ to ‘negative’ money flows in order to identify the state of a trend.

Further, it could be noted that the volume (number of shares) seems to be rising during the past week as shown by the lower window (blue line) in the above chart. Friday’s volume of 21 million shares was last seen during February of this year. Since volume precedes price, the current activities seem to indicate that a brewing upside breakout could be seen anytime soon.

On the fundamental side, it is public knowledge that Canadian Mining Ivanhoe Mines , whom has extended to Lepanto Consolidated a 180-day $3 million loan, is presently at the maturing phase of its due diligence. This means that Ivanhoe Mining could be expected to formalize its proposal, whose package could possibly include the investments as well as Lepanto’s current hedged/forward sales position, anytime soon. So it appears that the current accumulation could possibly be in anticipation of this development.

That’s the way it looks from here.