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Rubicon Minerals: Buy and hold investors best look elsewhere

On Aug. 13, 2014, Jeff asked for an analysis of several stocks, one of which was Rubicon Minerals Corp. (RMX), which he had purchased for $2.12 a share. This will be the second time that I examine the company.

The last time was on July 12, 2013, on a request from Jim. The stock was trading for $1.30 and he wanted to know if I thought it would be prudent to buy more to average down on his original purchase price of $5.00. Averaging down is not something I usually recommend.

The analysis indicated that there were plenty of trading opportunities even with a stock that was in the grips of a downtrend. At the time the RSI and the MACD were generating signals that a trade was setting up. Retrospectively, that is what transpired.

Another inspection of the charts will provide the basis for my opinion.

The three-year chart illustrates the trade that formed in July of 2013. The stock caught a lift from $1.20 to nearly $2.00 by August but that was all it had to give. What is also noticeable is the resistance that came in along the 200-day moving average and the downtrend line. RMX retreated to a 52-week low of $0.69 by December of last year where buying started to come in.

The MACD and the RSI both generated buy signals at the lows and RMX ran back towards $2.00 by mid-February 2014. Once again the shares pulled back, retreating to $1.00 by late May. The momentum indicators then signalled a buy, sending the shares to just over $1.75 by mid-July. In the July 12, 2013, analysis it was advised that RMX offered a number of trading opportunities but was perhaps not the best stock for a buy and hold investor. It would be safe to say that we continue to see the same scenario playing out in 2014.

The six-month chart provides a close-up of the buy signal generated by the MACD and the RSI in June leading to a sweet gain in less than sixty days. The momentum indicators signalled a sell by the later part of July when the shares began a retreat from $1.80. At the moment there is nothing on the charts to suggest that the selling has abated. The best way to approach this investment is to consider a trading strategy.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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