John: Today, Gold Bullion Development (GBB, TSX-V) opened at 57 cents, traded as high as 59 cents, and closed at 57 cents on volume of 1.1 million shares. The interesting part about today’s trading was that many times the bid at 57 or 58 cents was hit and the blocks were easily and quickly replaced. Buyers were patient and soaked up shares to 59 cents.
On Monday, August 9, 18.7 million shares from the April financing become free trading. It would be a mistake, however, to assume that all of a sudden a bunch of stock is going to dumped into the market. First of all, the market has likely already absorbed some of these shares through a shorting technique as explained in today’s “Morning Musings”. Second, a good percentage of these shares are believed to be in “strong hands” – long-term holders who have no intention of selling at current levels. Third, there will be some investors who will elect to sell their 21.5 cent stock and “ride” the half warrant at 30 cents but they will likely do so at varying times over a period of a few weeks as we saw back in April when a bunch of 7 cent stock became free trading.
Let’s guage the effect in April and May when 13.7 million shares were released for trading (beginning April 23). Looking at the 4-month daily chart below, I have shown a thin vertical blue line at April 23. We see that the volume that day was over 8 million shares and the closing price was higher than the previous day. The buyers were waiting. There was also important news that day (the release of the Preliminary Block Model. If we’re guided by history and common sense, I think it’s safe to assume there could be big news next week as well from Gold Bullion).
If we now look at the Chaikin Money Flow (CMF) indicator, we see that on April 23 the indicator drops below the zero line indicating selling pressure and this selling pressure continued until May 20 (thin vertical blue line). From there, buying pressure took over. There is no strong indication that many of the shares were shorted prior to April 23.
If we now look at July 22 (thin blue line), we see that the CMF has dropped below the zero line so we may reasonably conclude that some shorting started around this time – two weeks before the release of the April PP shares.
Over the last 4 trading sessions, 8 million shares have changed hands – a significant number of which are probably shorted shares. From the trading pattern today, the buyers were waiting. It’ll be interesting to see the volume next week.
The market had little problem absorbing the 7-cent PP stock in April and May when investors had a chance to sell and make 5 times their money (there was also a full warrant on that financing at 10 cents). The overall market was also quite weak in May. Now, those who participated in the April financing at 21.5 cents will be making just under 3 times their money if they elect to sell now, and chances are that few of them will be dumping 30 cent shares acquired through the half warrant.
Gold Bullion’s price is well supported by the SMA(50) and the RSI is flat above 50% – bullish indications.
Gold Bullion’s 10, 20, 50, 100 and 200-day moving averages are all in bullish alignment.
Outlook: The indications are that the release of the April private placement shares Monday will be a “non-event”. In fact, the stock may begin to edge higher as the fear or confusion some investors seem to have over this subsides.
