Technical Analysis Report

In this inaugural session of the Technical Analysis Report, we’ll get things going by using the insider buying report as a screen for choosing gold companies that we’ll look at closer.

As the saying goes, why would you want to own a stock if the company’s insiders don’t want to own it? While that may apply more to insider selling, the reverse is also often true. If insiders are snatching up a stock at market prices, at can be a sign of value.

Scanning the INK Research report for gold companies Kirkland Lake Gold (KGIT-T) and Linear Gold (LRR-T) stand out. Both appear in the top ten in terms of dollar value on the materials sector insider buying list, and both show a number of bullish technical indicators.

Let’s begin by looking at Kirkland Lake, a company that owns and operates five gold producing mines in the Kirkland Lake area.

Insider buying has been strong with insiders buying $919,000 worth of stock over the last two months.

Volume: Heavy positive volume was seen for the stock back in early and late July. The stock subsequently ran up from the $7.50 range to over $10. It closed at a year high of $10.79 on Dec. 2.

Trend Analysis: Since partaking in the gold sectors strong run from early March to late May, Kirkland Lake shares have traded in a relatively broad consolidation pattern. Share price in that time has trended between the $8.20 and $10.60 range.

It should be noted that a bullish trend line (which was tested and held three times – the minimum amount of tests for a trend line to be considered legitimate) was broken in early October. Since that time support has been at the $8.50 level, so proceed with caution if prices fall below that mark.

Quantitative: The stock has just come off the bottom Bollinger band, and it is just coming into desirable areas on other charts as well.

It is beginning to emerge from the “over-sold” sections of the Williams %R oscillator and its cousin the Slow Stochastic chart.

The Relative Strength Index is just trending to the 50 line – a buy signal is generated when the line crosses the 50 mark from below.

The Rate of Change, however, is not as strong. This momentum indicator shows the difference between today’s closing price and the closing price 14 days ago. A crossing of the 0 line is bullish. In the case of KGI the ROC line has turned up towards 0 but is not yet there.

The king of the oscillators, MACD, is turning positive, however. While the MACD line has yet to cross the signal line it is moving up towards it. A buy signal is generated when the MACD line crosses the signal line.

Importantly, unlike many other gold mining stocks, the MACD for KGI shows no divergence. Its early December highs were confirmed by a higher MACD levels, and such confirmation is considered crucial when performing technical analysis.

At presstime Kirkland Lake shares were trading for $9.24 in Toronto.

Turning our attention to Linear Gold gives us the opportunity to look at a gold development company next to a producer like Kirkland Lake. Linear’s flagship development property is near Uranium City, Saskatchewan, where it is gearing up to become a 70,000 to 90,000 ounce per year gold producer.

Volume: High volume on selling appeared in early November as the share price slid from $2.34 to $1.94 over just three days before buyers appeared.

Trend Analysis: While a bearish interpretation would read a slight downward triangle forming from early November until now a more positive view would see the stock price as moving in a consolidation pattern, trading between $2.20 and $1.90.

A move below the $1.85 level would trigger a sell warning, whereas an upward movement above $2.25 would send a signal that the stock was breaking up and out of consolidation.

Quantitative: Bollinger bands show the stock to just beginning to bounce off of the lower band.

As for the momentum indicators, the Rate of Change is below 0 and trending flat which is negative to neutral. The RSI Index is slightly more bullish with the line on the cusp of breaking through the 50 mark.

Williams % R and the Slow Stochastic are both bullish as they are in the “over-sold” range, although it should be cautioned that stocks can stay in both “over-sold” and “over-bought” ranges for extended periods of time.

The MACD is neutral to bullish. The indicator did serve a warning before the share price turned south from highs of $2.75 in early October. The MACD at the time showed a divergence as it did not confirm the new highs. Sure enough, the stock began to tumble shortly after. Currently the MACD line is trending close the signal line but has not crossed it.

In Toronto on Dec. 23 the company’s shares closed at $1.97.  

Note: The author or his family holds no positions in Kirkland Lake Gold or Linear Gold.