Lone Star Gold Inc. (OTC: LSTG) was on a roll... until Friday, when the stock fell from $1.36 to a low of $1.02 before settling back to a close of $1.12. There's been little relief today though, with LSTG down $0.07 (-6%) to $1.05 (though that is at least off the low of $1.01) despite some encouraging news that we'll get in a moment.
What happened to this red hot runner, which had been up as much as 52% at one point in just its first four weeks of life as a publicly-traded stock? In a word, reality. After such a good runup, LSTG was flirting with profit-taking, and a little slip went a long way as all those buyers scattered at the same time. Note that Friday's volume was the highest volume ever for Lone Star Gold Inc., with about $1.4 million worth of shares (versus a $129 million market cap) trading hands.
Is the slaughter over? Probably. And we're taking our hint from a very comparable All American Gold Corp. (OTC: AAGC) which made a similar 120% rally right out of its IPO gate back in June. It was going along just fine, reaching new highs with no real problem until last week when it fell from $0.92 to a low of $0.45 before it was all said and done.
A problem with AAGC as a company? No - just a problem with an overextended chart that sets up a lot of profit-taking potential that the market just can't absorb. Yet, it's purely a technical event; All American Gold Corp. shares are already on the mend, up to $0.66 (up 46%) from the low, and making the gain on higher daily volume than we've ever seen for the stock. Clearly somebody see it as a second chance. Given the similarities, odds are good that LSTG is prepping to follow in those footsteps, and junior gold miners start to fall back into favor this week.
In any case, Lone Star Gold is working to support that rebound with another update regarding its La Candelaria Project in Mexico.
This morning's press release contained the usual verbose overview of the project and the company, but the key update is that about half of the surface-geological work has been done. This will serve as a roadmap of sorts, telling Lone Star Gold's drilling team how and where to proceed. From here the company expects to do its initial drilling within two to three months.
For nimble and aggressive traders, this is the time to be stepping into LSTG. It's easy to be a bull on the way up, but buying on the way up inherently crimps overall trade returns. Maximum profits (and granted, a little more risk) are associated with stepping into positions at depressed prices.
Besides, it's not like Lone Star Gold Inc. should be viewed as a momentum trade. This is still a story stock, and the story's perceived tide is likely to turn for the better again here. Welcome to the pendelum ride.