26 September 2010

Golden Hope - a healthy correction

I know it is a terrible thing to say, but I saw the drop coming. I was looking at Golden Hope Mines last Tuesday and just like with one of my other stocks Tradewinds Ventures (TWD), the stock was way outside the bollinger bands in the weekly chart. The EMA-9 line crosses at around 0.65 and that to me seemed to be where one could have expected to see a correction heading. Unfortunately, I did cash in on my TWD stocks but not on GNH, wrong choice so far! Let's not forget that GNH gained 400% in a period of four months. We're now very close to the 38.2% fibonacci at 0.67 which should serve at least as an intermediate support level. I am not worried but then I am never too worried about single stocks because I do not put all my eggs into one basket (helps me sleep at night). Watch the orange line (EMA-9) for the time being. This chart quite nicely shows that we had a similar situation happening from 0.74 back to 0.50, also very close to the 38.2% fibonacci level. These are quite healthy corrections for such rapidly rising stocks and are nothing to worry about. Such corrections should not necessarily be seen as a negative interpretation of last week's news. Sometimes there are just some big parties waiting to take some temporary profits and I have to give it them, it was a good time to let the stock cool down. For now, considering that selling happened at such substantial volumes, it seems wise to be cautious. If a bearish cross occurs in the MACD, we may see a further correction. Other signals are not necessarily as bearish as the MACD would be: the RSI and slow stoch in the weekly have not seen overbought levels since end of June this year. Most importantly, I keep a close eye on the RSI. Provided that this indicator does not dip below the May low, the longer term uptrend is still intact. All other factors equal, we are still looking at a major buying opportunity here.

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