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Schizas' Mailbag

San Gold: Don't hold your breath

It has to break above $3.60, and then some, to make the case for the return to an uptrend

Hi Lou,

Listen to you every morning on AM640 CFMJ. Can you give me an idea on San Gold?

Thanks,

John

Hi John,

Just a quick house keeping note. San Gold Corp.(SGR-X3.470.113.27%) announced on October 8, 2010 that they had received conditional approval to list their shares on the TSX under the symbol SGR. The stock has had a great run but it's now trading in a down channel, despite a surge in the price of gold. Let's consult the charts for a better look at the prospects for this miner.

The three-year chart indicates that investors decided to back off of their positions as SGR peaked May of 2010 and has now broken below support at $3.80 and along its 50- and 200-day moving averages. I always take these factors as a caution flag on the track. When the trend is down and investors are not willing to step up to buy at what had been support levels its time to review the reasons we are holding or even thinking of buying.

SGR did catch a bounce off of support at $3.20 from an oversold situation but it still has a downtrend line providing ample resistance to a trend reversal.

The six-month chart illustrates the overbought situation signaled by the RSI in May 2010. From the high at $4.80 SGR made a steady retreat to support at $3.20, where it caught a bounce. The RSI is signalling that the stock has been oversold and that would explain the pop over the last two trading days.

At this point, I don’t think that a two-day advance justifies the risk. SGR will have to break above $3.60 and then $3.80 and finally through $4.00 to make the case for the return to an uptrend. Let's also keep in mind that as gold has steadily advanced since May of 2010 SGR has gone in the opposite direction.

Make it a massive Thanksgiving and Happy Capitalism!