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Lithium Americas - Chart Showing Consolidation, Buying Opportunity

Apr. 22, 2016 2:51 PM ETLAC
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The overall lithium space is reminding me of the tech bubble of the 1990s. It seems like almost every day there's a new player entering the field, touting acquisition of claims either abutting or in close proximity to existing mines or those that are close to production.

I don't want to overstate things however, the tech bubble was massive. Lithium by contrast, while behaving in a similar fashion in my opinion, is on a much smaller scale to the early days of Amazon and Pets.com.

I use those two examples because I believe they represent the risk reward nature of a bubbling sector. Bubbles happen for a reason, there are still good longer term investments to be made, but there are many many many more that will fade to black. You have to be careful. Obviously, using the tech bubble as an example, Amazon was a huge winner while Pets.com was a big loser.

I like Lithium America's chances of being one of the few Amazons in the Lithium space. If you've been following Lithium Americas then you already know about the major news they released on March 28th of this year. A 50/50 joint venture with Sociedad Quimica y Minera de Chile (SQM) one of the so called "big three" among existing Lithium mining companies.

www.marketwired.com/press-release/lithiu...

That deal sent LAC's share price on a big run, from in and around 45 cents, up as high as $1 CDN on the TSX. It has since cooled off and is currently trading in the 80-85 cent area as I write this.

Based on the chart I am seeing either a cup and handle, or an inverted head and shoulders on the 1 year chart. Both are bullish patterns, and I think its important to understand the psychology behind these patterns.

I'm showing the 4 year chart to demonstrate how many times previously this $1 area has been reached. I count four times, first in early 2014 and again later that same year, and then a third time around June 2015. This is the 4th time that LAC has gotten up to this area.

What that means is that on three previous occasions investors have seen LAC get up in and around $1 CDN and each time it has fallen back, at times quite significantly. That kind of trading is what causes resistance. Those who've been invested for 2+ years have been riding a roller coaster.

Some people like midway rides, many do not. Those that don't will bail, happy to get out at what has proven three previous times to be the high.

Its this psychology that causes these type of charts. Do note that no pattern, no matter how reliable, is 100% guaranteed to play out as expected. The market is not that simple.

But combined with the fundamental picture for Lithium Americas, and the burgeoning demand in the overall Lithium space, I think this will prove to be a good time to buy/add.

One further note, while I am bullish on LAC right now, that opinion can change fast. Regular readers of this blog know that until very recently I was extremely bullish on Nemaska Lithium, but that changed this week when I took note of NMX's CEO hitting what I call the 'rubber chicken circuit'. Paying outfits like Ellis Martin and InvestorIntel for interviews and being a sponsor of an upcoming Lithium investor dog and pony show in Las Vegas turned me into a bear on that company.

If LAC continues executing on its business plan and avoids the typical penny stock promotional behavior I will likely remain solidly bullish for the longer term.

I also like that LAC trades on the TSX and not Canada's Venture Exchange. The Venture has a well earned reputation for being the wild west when it comes to Jr Miners. When it comes to the penny stocks you're looking for needles in the proverbial Venture haystack.

Comments as always are welcome, and that includes the haters....I view the posts calling me a twit etc to be a form of validation :-)

DISCLAIMER

This is strictly an opinion piece, and my opinion could very well turn out to be wrong. This instablog post is intended strictly for informational and entertainment purposes and should not be used as a basis for any investment decisions. Investing in stocks or options involves significant risks. For investment advice you should seek the input of a professional investment advisor.

Analyst's Disclosure: I am/we are long LACDF.

You can find me in numerous forums where I use the names krill66 (yahoo) growacet (stocktwits) and ledrog (stockhouse).

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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