Unigold & The Sprott Effect

It has been confirmed that Eric Sprott has added to his position in Unigold this week. Sprott filed his purchase through SEDI after market close on Friday. I had a feeling that Sprott may have been responsible for the large cross trade which occurred earlier this week and the filing today has confirmed my initial thesis.

Sprott’s purchase is a major vote of confidence. Given the large following that Sprott has, we should see an influx of buying on Monday which I like to call the “Sprott Effect”, as his followers move into the stock. When Sprott talks, people listen. We can name countless examples of tickers that have shot up mainly because of an investment from Sprott. MTS, GGI, SPA, NVO, FVL just to name a few. I know that right off the bat, some people will argue that since Sprott invests in so many juniors, his purchase isn’t all that significant. It’s true that he does invest in a lot of junior mining companies, but most of these investments are through private placements (PPs). PPs tend to have more upside as they usually come with a warrant. Sprott also tends to get better pricing, as just an endorsement from him alone is enough to add value to a stock. But what sets his latest purchase of UGD apart is that it was an open market purchase. He doesn’t usually buy in the open market unless it is the only way to increase his position. He knows that UGD has $6 million cash in the bank and won’t need to finance before the results from the next drill program come out, but the only way to satisfy his appetite for UGD stock was in the open market.


Sprott’s entry price for this purchase was $0.55, so anything below that, I see as a great buying opportunity. It is important to note that Sprott’s overall average is much lower as he was an early investor in Unigold. Nevertheless it is good to see him averaging up through the open market as it shows he is bullish on UGD for the long term.



A Technical Analysis Update


I am still confident in my trading thesis from the last UGD technical analysis update I put out. I still believe UGD will complete the measured move to the $0.70-$0.73, albeit it may take longer than expected.

Going back to the beginning of the chart, we see that the chart is repeating itself in bullish pennant patterns.


Pennant Patterns

Pennants are continuation chart patterns which are formed after strong moves. After a big upward or downward move, buyers or sellers usually pause to catch their breath before taking the pair further in the same direction. Because of this, the price usually consolidates and forms a tiny symmetrical triangle, which is called a pennant. In the case of the UGD chart, we see two repeating bullish pennant patterns. Bullish pennant patterns occur when a there is a sharp climb in price, which resumes after a brief period of consolidation, when bulls gather enough energy to take the price higher again.


The accuracy of using chart patterns to predict future price movements can be enhanced by using confirmation indicators. In this example, we will use RSI (Relative Strength Index) and an EMA/SMA Cross to confirm the bullish pennant patterns we spotted.


Coincidentally, the start of the “flagpole” of these bullish pennant patterns are occurring right when the EMA (exponential moving average), marked by the green line, nearly crosses the SMA (light blue line) in a downward direction, these zones are marked by bright yellow circles. If the EMA were to complete this downward cross, it would be a bearish signal in the chart. This is also occuring just as the RSI goes below 30.0.


RSI (Relative Strength Index)

The RSI can be seen at the very bottom of the chart in the purple area. The RSI is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock. If the indicator is above 70.0, the stock is in “overbought” territory and if the indicator is below 30.0, the stock is in “oversold” territory. The RSI is most reliable during periods of consolidation. We can see that the bottom of the last bull pennant occurred right when the RSI hit 30.0. Immediately after this, the next “flagpole” began to form and the stock went from $0.35 to $0.65. On Friday, at market close, the RSI went below 30.0 again for the first time since.



Conclusion


For the last two weeks, UGD’s stock has consolidated between $0.50-$0.60, as bulls awaited a catalyst to take the stock higher. On Friday after market close, the bulls were given the catalyst they were looking for, which was the confirmation of Eric Sprott making a large open-market purchase earlier in the week. On Friday, we also saw the EMA touch the SMA, but not cross and we also saw the RSI touch 30.0. The repetition of the bullish pennant in the charts combined with the bullish confirming indicators we saw on Friday point to an overdue upward measured move to the $0.70-$0.73 range, after this long period of consolidation.

Disclosure: Author owns shares of TSXV:UGD and may choose to buy or sell at any time without notice. Author did not receive any compensation for publishing this article. 


DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.

SITE SEARCH

CONTACT US

E-mail:

Social:

  • Twitter
  • YouTube

SUBSCRIBE NOW

DISCLAIMER

THE INFORMATION AND OPINIONS CONTAINED WITHIN THIS SITE REFLECT THE PERSONAL VIEWS OF ADAM GIDDENS AND THEREFORE ALL MATERIAL WITHIN SHOULD NOT BE CONSTRUED AS ACCURATE OR RELIABLE OR BE UTILIZED AS ADVICE FOR INVESTMENT OR BUSINESS PURPOSES. INDEPENDENT DUE DILIGENCE AND DISCUSSIONS WITH ONES OWN INVESTMENT AND BUSINESS ADVISORS IS STRONGLY RECOMMENDED. ACCORDINGLY, NOTHING ON THIS SITE SHOULD BE CONSTRUED AS OFFERING A GUARANTEE OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN, AS AN OFFER OR SOLICITATION WITH RESPECT TO THE PURCHASE OR SALE OF ANY SECURITY OR AS AN ENDORSEMENT OF ANY PRODUCT OR SERVICE. ALL OPINIONS AND ESTIMATES INCLUDED ON THIS SITE ARE SUBJECT TO CHANGE WITHOUT NOTICE. ALL CONTENT MAY BE REPRODUCED UNDER FAIR USE DOCTRINE PROVIDING PROPER CREDIT AND A RETURN LINK IS MADE TO THIS SITE.