Medinah Minerals (MDMN)

[Hurricane_Rick]

Actually, the head & shoulders pattern isn't that clear at all, although the general shape had formed. There was a head, but the shoulders and neckline have been muddied and indiscernible to make a judgement on where the neckline was violated. When identifying a head and shoulders, you want clear definition of the left and right shoulder along with where the neckline forms its "bottom". I can't draw the pattern on the daily chart with any sort of definition. That doesn't mean you can't predict that a drop might occur or not, you just can't identify at what point the drop will occur.

One thing that makes these recognizable chart patterns work so well is the self-fulfilling prophecy that is inherent with the pattern by all traders that recognize and trade according to it. If a large group of traders are following a stock that has a head & shoulders pattern, then they will all sell or short right when the share price hits the neckline support line. This mass behavior working in concert creates the expected effect of the chart pattern which is why so many traders use the chart patterns...because it becomes likely and predictable. However, as I stated above, the MDMN chart does not have a well-defined head & shoulders pattern so choosing the tipping point of the break down is very difficult if not impossible. That is why I didn't define it in any of my charts.

I preferred to stick with the channels and support/resistance lines. As I've annotated in previous charts, the .13 line has been a very strong support line in the last 5 or 6 weeks. Once we failed to follow through in the ascending triangle a few weeks back when we first broke above .165, the chart lost its clean upward bias and settled into a more horizontal consolidation channel between .13 and .17...although we hadn't even breached .14 at the time. Today's sell-off breached both of those levels, but snapped back quite quickly and definitively which indicates that shareholders see anything below .14 as a bargain...and even more so with .13.

Today's move, while it did break down through technical support areas was actually not a significant chart move in spite of the -25% intraday drop. The reason being is that it was clear that it was not news based and for anyone with Level II it was clear that the drop was the result of one of two things:

1) A single shareholder (or group of shareholders) that simply dumped approximately 1.5 million shares with absolutely no regard for what price they sold at. If this were the case, I would lean towards a single shareholder as opposed to a group. At the time there simply weren't enough bids to absorb the dumping and the share price collapsed accordingly. However, when people noticed the dump off and it wasn't tied to any news (remember that in spite of the popular criticism of kookaid vending, the MDMN shareholders are VERY well plugged in as to the goings on with the company), shareholders and traders jumped in immediately to grab shares at a bargain. Reports from many shareholders were that they were unable to grab shares that were bid above the ask at the time. Some shareholders were able to grab some shares though and I was able to pick up a small amount for my Mom's account in the .12s, but she had an existing stink bid in. Regardless, there apparently was a certain amount of shares that appeared to be blocked out of consumption by regular shareholders until the price recovered above the .13 price level.

2) It was a "bear raid" that was orchestrated by one or more of the market makers like ASCM who has a reputation for such market manipulations. I know this idea is ripe for criticism, but anyone who has been trading in the market long enough knows these types of games happen all the time. Anyone who denies the market is rigged is either lying through their teeth or simply does not have the experience to have witnessed it. In any event, today's drop certainly had the feel of a bear raid because the drop was so precipitous and it wasn't like any key technical support level had been breached or was even near teetering. In fact the over-exaggeration of the downward move wound up being a lot more bullish as far as being a reversal is concerned (note the extreme length of the wick on that hammerish candle) rather than if it had been a methodical -5% per day eroding of the share price.

So it will be interesting to see what kind of follow through occurs tomorrow and the rest of the week. Some shareholders might have been spooked by the drop while clearly others jumped in and scooped up all they could. I wanted to, but I didn't have any powder dry since I bought up all I could in the low .15s last week in anticipation of news on Monday or Tuesday. Obviously that didn't happen and I lost out on that opportunity. I believe the share price is going much higher so I'm not worried about averaging up on those shares...I'm just bummed I didn't have powder dry to take advantage of the drop down to .111 today to the extent I would have been able to.

Looking at the chart, the blue ascending channel is has held for the time being since I do not generally use wicks of candles to define channels. I believe .14 and .13 are still key support levels...with .13 being much more critical. Whether that holds or not is more for short-term traders rather than long term investors. Most long term investors are fairly confident that the deal is going through and the stock will be trading at much higher levels than we currently find ourselves in. Some shareholders feel it is 2011 all over again and they will whine and complain and possibly sell accordingly with any further delays by the company...or rather the purchasing company. Some shareholders see distinct differences between 2012 and 2011 and have prepared accordingly and will not be swayed by these gyrations and games. Only one group will be right and I don't believe we'll be waiting too much longer to find out who has played their cards correctly.