More Coverage on LBSR and KATX Friday August 27

My apologies for the late post today.  I am a bit busy preparing to head out to the Cape during the end of this week.  I will have more detailed thoughts on both LBSR and KATX along with plenty more penny stocks that come across the radar screen in the days and weeks ahead.  Please bear with me the next few days if posting is somewhat light.

So just a few quick comments on the LBSR and KATX charts today.

LBSR (Liberty Star Uranium Corp) today sold off but once again showed a bottoming demand tail on the candlestick.  This is a short term bullish sign.  However today was also an inside day in that yesterday’s high and low were not tested of taken out.  Volume lightened up today on the decline which is a bullish sign.

The MACD histogram is once again flashing at least a potential sell signal but it is unconfirmed and it will fail as a sell signal if we close above the 8/25 swing high.  However if we close tomorrow (Friday) below the .1022 swing low it will be a confirmed sell signal.  I am also noticing on the intra day chart at least a potential head and shoulders topping formation.  If we close down tomorrow it may begin to form the head and then the neckline would be at .08 which is likely going to be good support.

At the risk of sounding repetitive, I continue to believe that LBSR is trading into news and we would advise caution after news is released as it can tend to act as a strong reason to sell even if the news is extremely positive.

At some point LBSR is going to have to start building sideways cause again.  It has already exceeded the high tight flag formation measured move and is now in the stratosphere.  So key for 8/27/2010 is whether or not LBSR can print a new high AND close at a new high.  If it does that then expect higher prices early next week.  If it closes below the 8/26 low then expect some early weakness next week.

The penny stock KAT Exploration KATX has different dynamics taking place in its penny stock chart, much different than LBSR.  Today KATX did a deep retracement of yesterdays big belt hold candlestick (a big candlestick that shows strong close and strong move right from the get go).  In fact today’s (8/26) deep retracement makes the candlestick pattern look like a potentially bearish piercing pattern (this is when you get a deep retracement into a bullish candlestick the day before that covers 50% or more of the body of the previous candlestick.  The potential bearishness of this pattern will not be confirmed unless we get a close under .115

On the plus side, the deep 8/26 retracement on KATX was on 1 million less shares, a bullish sign.  Still the most important consideration is to try to see the forest for the trees on this penny stock.  I can talk to you about daily price action all day long, but what about the bigger picture on KATX?

The bigger picture involves the 6/1/2010 price peak and the long downward slanting consolidation we have had since then.  The key points are that we have been trading in a consolidation in descending fashion.  This simply means that we have a series of lower tops each time we have tried to rally.   This is a concern because you usually do not want to see lower tops over an extended period because it shows that there is consistent supply coming into a stock (selling).

However, on the plus side we see that .11 has been tested 3 times so far and has consistently held support.  We have had 3 nice upward reactions off of this support line showing demand.

So the battle will eventually be lost or won.  If KATX breaks below .11 and closes below .105 then I have to assume that the sellers won and a new potential bullish scenario is lost.

If KATX on the other hand in the first week or two of September can break above .15 or higher, then we can start to assume that a new bullish phase may begin.

These are the trading dynamics of this penny stock. The battle is either going to be won or lost.  There is no reason to get emotional about it.  It all comes down to supply or demand.  A break below .105 would put us in a situation of saying that we cannot recommend holding onto KATX any longer.  Why? Because that would show a violation of support.

The problem with penny stocks is that when they turn long term bearish they do not make it very obvious.  They tend to die a slow drifting down death.  Those who do not pay attention to the clear signals ahead of time stand to risk riding a penny stock all the way back down to where it began its journey.  I can name you plenty of penny stocks that have suffered this fate.

But at least as of right now I can tell you that no clear major sell signal or new bullish signal has been activated yet.

I should also mention that if the gold price can somehow manage to blast higher to new life time highs, it may help to support the micro cap mining stocks.  My current technical analysis of the gold price suggests that it may in fact do that in September.  Also, September is the seasonally MOST bullish month for mining stocks and precious metals.  So it would seem that the wind can be in the favor of many penny mining stocks.

Still, the levels are clear in KATX and must be respected.  I will have more coverage of LBSR and KATX in the days and weeks ahead as well as more detailed charts and analysis.  We try to provide the best penny stock coverage and the most depth because it matters.

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