Thursday, February 23, 2012

Case Study - Timberline Double Bottom?

HOUSTON -- Following Timberline Resources’ (AMEX:TLR) announcement that its expected final mine operating permit for the Butte Highlands underground mine in Montana would be delayed until perhaps mid-2012, shares of the soon-to-be low-cost gold producer dipped in disappointment selling from the $0.60 range to as low as $0.45 on January 13, 2012.  (Our coverage at this link.)

In the very short term volume candle chart just below the second of two downward thrusts is visible.  On Valentine’s Day TLR dipped again, but this time fetched up at a slightly higher $0.47, potentially establishing a technical double bottom with a slightly higher low. 

20120223-TLR 1

The double bottom is more visible in this longer-term volume candle chart.

Continued… 

20120223-TLR 2

What is interesting about these charts from our biased perspective (we are long shares of TLR) is that TLR may have just shown us where “overwhelming support” (OS) resides.  For non-Vultures, we use the term “overwhelming support” (OS on our private charts) to indicate the level where an issue finds it extremely difficult to trade below it.  In theory, it is the zone that no matter how much selling pressure comes in, there are ample buyers ready to take all comers at that level.  A price where insiders, deep discount value hunters, low price loving bargain specialists and similar Vulture-style buyers/traders all come in on the bid at OS independently, each acting in their own self-interest.

Although we cannot know if an issue has reached OS until after the fact, we get signs and signals that OS may be forming in the daily and hourly charts sometimes. One of the indicators we look for and take note when we see them is candle stick trading bars that exhibit what we call “rat tails,” which are long lower shadows (thin lines at the bottom of the candles) on hourly, daily and weekly trading bars. When we see rat tails consistently we have come to take that as a sign that the stock “wants” to travel in the opposite direction. 

Rat tails (our name for them) don’t occur in a vacuum, so they cannot overcome company specific bad news,  exogenous or market wide calamity, or sudden sector sell downs, but all things being equal our experience is that they can be a reliable indicator much (not all) of the time.  Rat tails are sign that bidders are taking most any dip to accumulate, we believe.        

Over the past couple of trading sessions TLR has gradually moved higher, on relatively low volume, indicating that the selling pressure which took it to a 52-week low was exhausted.  It also indicates that some anticipatory accumulation is underway. 

Below is a much longer-term chart of TLR to put the two charts above into some context. The chart below is the very same one we used to highlight TLR at Brien Lundin’s New Orleans Investment Conference in October, updated to February 22.  The disappointment selling managed to take the trading into the very top portion of the zone we have dubbed the “Road Kill Level.” 

20120223-TLR 3

Everyone knows how much Vultures love road kill.  

We deem shares of Timberline as being undervalued following the rough market for junior miners and explorers in 2011.  Because of the near-term disappointment of the non-fatal permit delay, TLR has not participated in the recent revival of smaller miners since mid-December.  As mentioned in our previous coverage, CEO Paul Dircksen described the permit delay as a “speed bump, not a roadblock,” and TLR is expected to submit a revised water handling and treatment plan to Montana environmental authorities imminently.  (Additional details in the previous coverage.)

With a market cap of something less than $50 million, in our view the market has not only underpriced the Butte Highlands soon-to-be low-cost gold mine, it has also dismissed and forgotten TLR’s flagship exploration project at South Eureka in Nevada near Lookout Mountain entirely.

 
Everyone can and should study the issues carefully and arrive at their own conclusions about this promising U.S. gold miner/explorer, but we would suggest that money managers looking for a low-cost addition to their portfolios get in touch with TLR management for more information sooner rather than later – now while the Value Gods have provided us with perhaps our last good buying op for TLR. 

At any rate, non-fatal disappointment selling for issues we have high confidence in is one of our favorite setups here at Got Gold Report.  Over the years we have profited handsomely by buying shares from disgusted and exhausted gamers at Vulture Bargain prices following disappointing, but understandable and non-company-threatening news.  If the news results in a short-term delay as opposed to a deal killer or other serious trouble, it is Vulture Fodder deluxe.

 
We look for important news to surface from TLR over the next while on multiple fronts from both Montana and Nevada.  That is all for now, but there is more to come.    

Disclosure:  Timberline Resources is a Vulture Bargain Candidate of Interest (VBCI) and is our fully fledged Vulture Bargain #4. Members of the GGR team are actively accumulating shares of TLR and continue to hold a speculative long position in the company.  


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The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter


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