Interactive Investor

Chart of the week: is this penny stock a great recovery play?

Our chartist goes off-piste, but this gold company is worth considering.

17th May 2021 12:27

John Burford from interactive investor

Our chartist goes off-piste, but this gold company is worth considering.

I am going somewhat off-piste this week with a relative AIM penny stock minnow – Greatland Gold (LSE:GGP). For one thing, I have always had a soft spot for emerging exploration/mining companies since my earlier years living in Toronto and discovering the vibrant Canadian mineral exploration sector. For another, the price chart appears to be setting up for a major move.

This six-year-old company is currently involved in a joint venture with the giant Newcrest Mining (ASX:NCM) in an Australian gold/copper project and is about to start operations.

Only someone just arrived from Mars would not know that commodities are a very hot investment topic at present. I have been writing about this for some time and warned a year ago that we were about to embark on a commodities boom.

Already, copper prices have rocketed up by 140%, iron ore by 240% and lumber (for North American house-building) by a whopping 460%. I would say that is a commodity boom.

And gold is also in a long-term bull trend off the major 2016 low at $1,040 (£737.13), currently $1,850.

And now the US is planning to embark on the trillion dollar-plus infrastructure plan of President Joe Biden, with pretty obvious implications for materials demand and prices. 

Remember, the US government is a price-insensitive buyer (as are all governments), but a warning: savvy traders have been front-running these developments for some time and have amassed huge long positions in many commodities.

This is the daily Greatland Gold chart:

Past performance is not a guide to future performance.

In fact, I have a textbook five up/three down to the Fibonacci 50% retrace on a strong momentum divergence. 

This is my usual recipe for a high probability reversal up in a third wave at low risk at current prices.

The last part of the recipe is extremely important for my trading/investing style. I will not tolerate a lengthy period where prices drift against me for days on end after entry. My trades must move in my favour pretty much right away. That way, I have the luxury of being able to move stops to reduce my potential loss on a reversal or even eliminate it.

Remember, stocks are not meant to be married! When they stop performing, love them and then leave them. At the current 21p, I am bullish for a punt (this is a penny stock, after all!) and only a move down below the 18p area would send me back to the drawing board. My first major target is the 28p area and then the old high at 38p with higher potential.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

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