As investors, quite often our greatest challenge is overcoming our emotions. Fear and greed are both very prevalent in the market. Recently, the “fear factor” has seemingly played a role in Sidon International’s (SD, TSX-V) weakness as the stock dropped nearly 40% from a high of 15 cents September 20 to a low of 9.5 cents 2 days ago (in the midst of a rising and strong overall market). It bounced back up yesterday to close at 10.5 cents. We’ve received a lot of emails regarding Sidon recently, so we made it a priority to get in touch with President and CEO Kamal Alawas. We spoke with him at length late yesterday afternoon.

We first introduced Sidon to BMR readers last spring when the stock was sitting at a nickel and the company reported March 31 that it had entered into a letter of intent to acquire the Morogoro East Gold Property in Tanzania. This was a fledgling company with an unimpressive past, not unlike some others we have highlighted at BMR that have gone on to become very successful. We said Morogoro East, a very prospective property in an underexplored area of a country increasingly becoming known for gold exploration and mining, would become a “company changer” for Sidon. That’s exactly what has been happening. Sidon got as high as 18 cents in early August when it got a little ahead of itself and we did warn there was resistance in that area.

We view Sidon’s drop to strong support around 10 cents as merely a healthy correction within a primary uptrend for this stock which, based on RSI and Stochastics indicators, has now become oversold technically.

The drop in the share price has come at a time, ironically, when Sidon has strengthened itself financially (the company raised $1.7 million in September, $1.3 million in a private placement at 10 cents and $400,000 through the exersise of stock options) to get the ball rolling with Morogoro East. Laurence Stephenson,Sidon’s consulting geologist, is overseeing operations at Morogoro which gives us a great deal of confidence. We first spoke with Stephenson last spring. He knows Tanzania like the back of his hand and he has a lot of faith in this particular project.

Sidon is currently test mining a placer deposit at Morogoro and making all the necessary preparations for an upcoming drill program at the property. There were as many as 1500 artesianal miners on the site recently, which tells us something about Morogoro’s potential, but Stephenson has resolved that problem effectively. Several dozen of these locals are now helping Sidon with work that needs to be done at Morogoro.

Tanzania is a hot bed of exploration activity at the moment so investors need to understand that for competitive reasons Sidon right now is being careful in what it says regarding Morogoro and its overall game plan for that country.

Alawas also told us the company is working on plans for a new web site and more effective communication with investors which is encouraging to hear.

Sidon has come a long way over the last 6 months. There are always some growth pains in a situation like this – Gold Bullion (GBB, TSX-V), Seafield (SFF, TSX-V) and other companies in the BMR Portfolio have experienced growth pains as well – but investors should not allow themselves to get distracted from the “big picture” and blue sky potential, especially given the type of market we’re in right now and looking forward to over the next number of months. With that in mind we view the recent drop in Sidon’s share price as an opportunity and a normal development within an ongoing bull phase, not the sign of a problem.

Below, John has an updated chart on Sidon and examines how it looks from a technical perspective:

John: Yesterday, Sidon opened at 10 cents, its low for the day, then closed at 10.5 cents for a gain of 1 penny on total CDNX volume of 772,000 shares. This was only the 2nd trading session in the last 11 that SD saw a gain. As of 7:45 am this morning, Sidon is unchanged at 10.5 cents on light CDNX volume of just under 100,000 shares.

Looking at the 6-month daily chart we see that on July12 there was a sudden increase in volume which resulted in the start of a 9-session flagpole (black dotted lines) which took the stock from a nickel to a high of 15.5 cents. Then it formed a 5-session continuation pennant as noted on the chart. This pennant was validated by the declining volume (mauve line). On August 29 there was another breakout and a 3-session flagpole moved the stock from a low of 10.5 cents to a high of 18 cents. Note the black candle at the top of that flagpole which signified exhaustion and told us the stock was likely going to correct.

From the beginning of August until today Sidon has been trading in a downsloping channel. Monday’s low of 9.5 cents was at the bottom of the channel, thus the stock bounced off support there. As shown by the green horizontal lines there is very strong support at current levels.

Looking at the indicators:

The RSI has formed a bullish “W” formation at the 30% level and is pointing up – very bullish.

The Slow Stochastics has the %K (black line) forming a flat “W” formation at the 17% level. With the %D (red line) pointing down, it could cross up over the %D in the near future – very bullish. Note that the vertical thin mauve line shows how the stock moved up when the Slow Stochastics %K crossed up over the %D at the beginning of September.

The Chaikin Money Flow (CMF) indicator shows that there was little buying pressure during the most recent 5 sessions with investors just picking up the shares as offered.

Outlook: Sidon appears to have bottomed out and is likely on the verge of a rebound. The momentum indicators are set for a move – the price is at the bottom of the channel, therefore we can expect the first move to be to the top of the channel where it will encounter resistance (blue line) prior to a possible breakout to new highs. The long-term moving averages remain in strong bullish alignment, confirming the primary uptrend is fully intact.