Technical Analysis Pointing To Promising Setup For Gold, and A Specific Junior Miner

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Thursday, June 15, 2023

To die hard technical traders, chart patterns are financial erotica. Want to get them jazzed up? Start talking about haramis, dojis, and morning stars and watch them start grinning ear-to-ear. Why? Because patterns are money makers and addictive to the point that true nerds see them in shadows on the wall.

If you want to be revered and viewed as a TA boffin online and around the water cooler, bring up the fact that Versus Systems (NASDAQ: VS) has currently formed a “3 white soldiers” pattern or that Seagen (NASDAQ: SGEN) could make a new 52-week high after as it tries to breakout from a bullish engulfing pattern. It works to the downside too. “I’m not loving Mattel (NASDAQ: MAT) until it can power through the dark cloud cover pattern it has going on right now.”

Here’s two patterns and examples that should be on everyone’s radar.

First, let’s look at gold. A look at the two-year chart shows the precious metal is forming a “cup and handle” pattern, a type of bullish signal used by trader to predict the potential for an upward price movement. The pattern resembles a cup with a handle, hence the name.

Here's how it works:

1. Cup: The cup forms after a price increase eventually stalls and reverses direction before selling dries up and the price rises back to where it began, ultimately tracing out a pattern that looks like a round-bottomed cup. This is typically a lengthy process that may take several weeks to several months.

2. Handle: After the "cup" part of the pattern is formed, the price typically retraces a bit, forming a smaller dip or consolidation period, which looks like a "handle" attached to the rim of the "cup." This typically takes the form of a downward or sideways price channel, but it doesn't drop more than 50% into the cup’s price increase. The handle can last anywhere from one week to many weeks and forms in the top half of the cup pattern. It is generally accompanied by low trading volume.

3. Breakout: The completion of the pattern and the signal for traders to consider opening a long position occur when the price moves above the resistance level of the cup's rim or the handle's downward trend line. This breakout is often accompanied by an increase in volume.

In theory, the cup and handle pattern is a signal that the previous upward trend will continue after the pattern completes. The depth of the cup can provide some clues about the potential length of the ensuing upward move, which is usually roughly equivalent to the size of the cup. In gold’s case, a technical trader would target about $2,550 per ounce for gold should a breakout over $2,085 occur.

In the same vein, check out  Gander Gold Corp. (CSE: GAND) (OTCQB: GANDF), an upstart miner that looks to be making an inverted head and shoulders. An inverted head and shoulders is a powerful pattern that signals a bottom may be in for the stock and a new uptrend is beginning.

Here’s how it works:

1. Left Shoulder: During a downtrend, the price falls to a new low and then rallies, forming the left shoulder. This first trough is usually reached with heavy volume, and the following rebound happens with lesser volume.

2. Head: After the left shoulder, the price drops to a lower low (below the left shoulder) and then rises again usually reaching resistance about the same place as the left shoulder. This forms the "head" of the pattern. The low of the head is typically seen with even lower volume than the left shoulder, suggesting that selling pressure is easing.

3. Right Shoulder: The price falls again but remains above the low set by the head. It then rises one more time, forming the right shoulder. The volume on this final decline is usually light followed by a sharp increase in volume during the rise. If the momentum breaks the “neckline” of resistance established on rises during the pattern, the pattern and the down trend reversal are confirmed.

4. The depth of the pattern gives traders an indication of a price target subsequent to a breakout through resistance. 

In the case of GAND, the distance between the neckline ($0.22) and the head ($0.10) is 12 cents. As such, traders using the pattern would set a target at $0.34 ($0.22 + $0.12).

As with all trading patterns, it's important to remember that while the cup and handle and inverted head and shoulders pattern can be a useful tool in predicting market trends, they are not infallible and should be used in conjunction with other technical indicators and fundamental analysis. As it happens with both of these assets, there are compelling fundamentals as well. Gold is long recognized as a storage of wealth and inflation hedge. For thousands of years, gold has been valuable and there is no reason to believe that trend will end.

Gander Gold is ahead of the class with its dominant land position and incredible discovery team pioneering what could be Canada’s next great gold rush. There have been several significant gold discoveries in Newfoundland in recent years and the mining-friendly province is emerging as a bona fide gold hotspot. Many companies have reported high-grade assay results, including Gander Gold, which controls 2,259 square kilometers of mostly greenfield land in Newfoundland. 

Leading the exploration team is none other than Shawn Ryan, a man that is to gold what Steve Jobs was to portable music. Ryan’s gold-finding methodology of evaluating the land through a copious amount of sampling before drilling suggests that the Gander property could host large, untapped gold reserves similar to its neighbor, New Found Gold.

When fundamentals and technical converge, it’s time to pay attention and see what happens.

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Gander Gold Corp. (CSE: GAND) (OTCQB: GANDF) Full Corporate Write-Up: Click Here.

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