Liberty Star Uranium & Metals Corp About to Enter the Power Zone

Liberty Star Uranium & Metals Corp LBSR is trading like a blue chip stock lately even though it is a tried and true penny stock.  A couple days ago we indicated that we are going to be providing ongoing coverage of LBSR because we recently gave it the highest rating of 1 here at penny stocks penny stocks.com and because of our confidence in the price structure.

I cannot say for sure whether or not we will provide daily coverage on LBSR but we will make commentary when it is appropriate to do so.  We do technical analysis here but we do realize that the LBSR is also a fundamental one.

Penny mining stocks are unique in that they can move in a leveraged aspect relative to the size or value of what they have in the ground.  Perhaps they are a bit similar to biotech penny stocks in that the stocks trade on the potential and milestones which would eventually lead to a big cash inflow.

These stocks can make extraordinary vertical moves that would in some cases seemingly invalidate the technical analysis.  But it is our view that technical analysis is never really invalidated, but instead sometimes pushed to the limits.  For example, the long term uranium price chart showed us that uranium went into a mega bubble that pushed the relative strength index to seemingly impossible high levels (greater than 90 for a long time).  A typical technical analyst would probably have seen the 90 RSI level and then said it is extremely overbought and cannot go any higher.  Well it did go higher, much much higher into a blow off super spike.

So keep in mind that our technical analysis of LBSR will try to mainly focus on whether or not LBSR is maintaining its trend strength.  But we may be rough around the edges on the daily moves and if/when LBSR goes into a blow off type upside run.

Today’s Technical Analysis of LBSR

The purpose of this post is to look at the near term technical analysis of LBSR on the daily price chart to see what we can observe about the near term picture.

First, before I start to discuss the chart below I do want to apologize for not showing today’s price candlestick at the correct closing value.  It is still 15 minutes before the close and LBSR will probably close near the top of the range today.  So when you look at this chart below keep in mind that the latest price candlestick is at a closing value of .038 .

The daily chart of LBSR is very interesting because if you were to put this chart in front of my face not showing me the stock symbol and not showing me the current price it is trading at, I would probably assume it is just a nasdaq small cap stock with a very nice ascending triangle chart pattern.

The key observation in this chart is clearly the enormous sign of strength moves with the big marubozu candlestick price bar on about 46 million shares.  That candlestick was basically the lighthouse signal that LBSR is ready to start something big.  We must respect the signal that candlestick bar is telling us.  The signal it tells me (especially after trading in a long 1 to 2 year base) is new bull market.

After the mega spike to .03 on very heavy volume LBSR then transitioned into a consolidation which is perfectly normal and to be expected.  I suspect this pattern will repeat itself over the next few weeks, months or even 1 year time frame.  It is the nature of stocks to breathe in and exhale just like people do.  Small cap penny stocks in long term uptrends tend to do spike moves up and then transition into choppy trading ranges building cause for the next move.

Since the consolidation started in early July 2010 there have been a series of key reversal hammer candlesticks that have marked reversals in the short term consolidation phases.

The most recent one was a doji reversal hammer and led to today’s big breakout from this medium size ascending triangle.

The breakout from the ascending triangle looks valid to me today.  It showed wide price spread and zero supply coming into the stock by the end of the trading day.  The candlestick looks somewhat close to a maribozu type candlestick (where the open is equal to the low and the high is equal to the close). 

The closing volume today was about 6.8 million shares.  This is good but it still falls far short of the peak breakout volume of 37 million shares.  But the key today was that we closed higher well above the resistance level and above all the previous swing highs, a bullish sign.

Since the volume was dramatically lower I see at least the possibility that we pull back tomorrow to test the .0338 level or slightly lower before resuming higher.  Sometimes they initiate an early shakeout to test and touch new support.  It is actually quite common.

Finally I want to get to one last important point about today’s chart structure and that is that in terms of the RSI (Relative Strength Index) we have just entered what is known as the bullish power zone for the second time.  This level resides above the 70 level on the RSI portion of the chart above and is an indication that the bull are in control.  In fact they live and breathe up in that level.

So I suspect we will see follow on strength during the rest of this week until price blows itself out and reaches another intermediate term peak.  This peak could coincide with another RSI daily chart reading near the 94 level.  After the next intermediate term peak I would expect price to enter another consolidation to define a new range.

It is guesswork to predict how many days the RSI can stay above the 70 range.  The last time price peaked out in about 4 or 5 days as shown in the chart.

It will be interesting to see the follow through action tomorrow and the volume as well.  There will be pullbacks for sure, but for now the trend is strongly higher from the looks of the chart.

I will have some future technical analysis posts coming on the penny stock LBSR that talk about the weekly chart and the important dynamics that are going on there.