What Does Tax Loss Selling Look Like on Short Term Charts?

Update 1:  Adds longer term charts for context.

HOUSTON — Vulture G.L. in Europe asked if we could show examples of what tax loss selling might look like on our short term volume candle (VC) charts.  The charts are evidently becoming popular.   All of the examples below could, that’s could be showing tax loss selling. 

Tax loss selling is often characterized by repetitive sales into the bid, as opposed to setting up on the offer, so they tend to show up as negative volume on our 1-hour and 30-minute VC charts.

Of course there is no way to tell for certain what the motives behind any particular sale were merely by looking at a chart, but over time we do get a sense of the trading personality and can make reasonably informed assumptions from unusual activity – especially if that activity is consistent. 

First up is Timberline Resources (TLR).  On Friday one particular seller unloaded a bit more than 100,000 shares into the bid, knocking the bid lower by as much as 4-cents.  Interestingly, the sales seemed to be soaked up by more than one willing buyer.   TLR closed the day lower, but well above its low print.  Disclosure:  Timberline is one of our largest SRC positions and we have set up a bid ladder to catch even more if it trades a tiny bit lower than it did on Friday.  

All charts are 15-day, 1-hour increment volume candle (VC), which show the relative size of the increments in both the trading candles and the volume bars. 

Edit Saturday 21:30 to add longer term charts for context by request. 

For context, a longer term weekly chart below comparing the issue to important indexes that track the junior miners.   

Next is Comstock Metals (CSL.V).  Comstock has three factors giving us a great buying op at the moment.  The first is momentum from a sell on news event (SON) last month when the last drill results came in for the small drill program at the VG Zone in the Yukon.  People believe that there will be little chance for market moving news over the long Yukon winter (forgetting all about CSL’s Corona project in Mexico and additional exploration and trenching to come from the Yukon), so they used the good drill results at VG as a liquidity event to get out.

The first SON sellers set the tone, driving CSL lower and that fed on itself enough to trigger the second downward pressure event, tax loss selling.  Yet a third factor is a 15-cent financing that is just now becoming free trading – which allows the participants to sell their shares at anything above $0.15 and still have the warrant in case CSL does well in the future. 

Although it is not strictly legal to sell the shares short and then replace them with private placement shares once the restriction has been removed, some of the placement participants find ways to sell the stock short (or an equivalent action) ahead of when the restricted stock becomes free trading (either by selling unrestricted shares already in hand or other, more opaque means, such as using separate accounts in divergent cross border brokerages, et al), so the downward pressure from the sales of placement participants actually comes in or begins well ahead of the expected free trading date.     

In the chart below we point to several periods of obvious negative liquidity, hammering the bid.  Most likely that is tax loss selling at this late point, but all three factors could be in play.  All three factors are likely to end shortly and we would not at all be surprised to see CSL finding overwhelming support (OS) before the end of the month – as the selling has now taken the share price well below where it probably should have given the good drill results  this year.   

 
Momentum is difficult to predict in a normal market and downright unpredictable in a wicked negative liquidity environment as we have underway today, so we have to be willing to expect just about anything price wise (and try to take advantage of it) until the negative feedback loop exhausts itself.   The good news is that it will exhaust itself at some point.  Disclosure:  We participated in previous financings; we are accumulating this one aggressively at the moment and hold a growing long position on CSL.V. 

For context, a longer term weekly chart below comparing the issue to important indexes that track the junior miners.   

Next is GoldQuest  Mining (GQC.V) which is kind of the same story as with CSL.  From market darling to temporary market goat in a relatively short time, but based on  not all that many drill holes in the exciting Romero discovery in the Dominican Republic.   Some of those drill holes were of the absolutely fantastic variety, setting the expectation bar way, way too high and sending this issuer up from around 5-cents to over $2.00 in a very short time.  Some of those very excited trend jumpers with grand expectations in August and September now find themselves with a tax loss candidate about 75% lower than their entry.  Ouch. 

The VC chart below shows a gap lower on huge volume, a combination of disappointment selling following the release of a batch of drill results that failed to live up to the still overly high expectations of the fickle trend jumpers and retail gamers, and likely a bit of a panic spike lower.  The negative liquidity that follows that gap lower is likely in large part tax loss selling in our view.  

Despite the obvious fall from grace by GoldQuest since September, colleagues we know and respect are on the bid, not the offer for GQC – thinking more long term, but with more reasonable expectations.  GoldQuest is one of the more interesting exploration stories out there.  Disclosure:  We are aggressively accumulating GQC at the moment, content to build our stake in the company while it is being “goatified” by a fickle, unforgiving market.  We hold a recently acquired long position. 

For context, a longer term weekly chart below comparing the issue to important indexes that track the junior miners.   

Finally, one more from the Yukon.  Kaminak Gold (KAM.V)  broke long term support in early November and has come under what we call “Panic Spike” selling since then.  Ironically, this particular panic spike follows a $12 million, $2.50/sh financing closed in early October, landing a major posture puncture for the company and the financing underwriters (RBC Capital Markets, Canaccord Genuity, Fraser Mackenzie, Mackie Research Capital, Paradigm Capita, and Raymond James).  Ouch! 

The chart below shows what a panic spike can look like, and with Kaminak having broken major long term support it has become a kind of poster child for tax loss selling.  However, it may be reaching the level we call “OS” or overwhelming support around the $1.00 mark.  Heavy emphasis on the word “may.”  In private charts we have added the label “Capitulation Watch,” meaning we are on the lookout for capitulation on this issuer imminently.  This kind of irrational downward momentum can be surprising in both intensity and amplitude, so we cannot be surprised by just about anything price wise until the downward momentum and tax loss selling is exhausted.  We Vultures love this kind of action, by the way – when we are in an accumulation mode.

  
Does Kaminak deserve this kind of mistreatment by the market?  No way in our opinion.  So we view the current set up as a gift from the Trading Gods and thus we are aggressively accumulating it over the past three weeks.   Disclosure:  We have recently begun building a stake in Kaminak, having followed it on charts for years with no position.

For context, a longer term weekly chart below comparing the issue to important indexes that track the junior miners.    

Thanks for the question.  We hope you find the above interesting.  As always everyone should study the issues carefully and make their own informed decisions.  We are high risk takers here at Got Gold Report.  What we do – vulutre speculation –  is not for everyone.  

2012-12-09 01:21:13

Source: http://www.gotgoldreport.com/2012/12/what-does-tax-loss-selling-look-like-on-short-term-charts.html