North American Palladium Oversold, Yet Sinks Lower

Jacob Harper |

Canadian miner North American Palladium (PAL) saw shares drop sharply once again on May 21, exacerbated a rough year that has seen its stock plummet 58 percent in 2014 alone.

The dropdown represents a continuation of a trend that seemed to have hit its bottom last month. But it’s a bottom that keeps getting lower, causing investors to continue exiting this once-promising small-cap play.     

The junior miner spiked in January as the Russian-Ukrainian conflict caused a run in precious metals, with worried investors seeking safe haven in the midst of the conflict. De-escalation led to a correction then another pop on news of the discovery of additional reserves in the company’s Ontarian Lac des Iles mine.

However, it was bad news from those same mines that appeared to send shares downward in May 21 trading action. A revised estimate that pegged Lac des Iles’ reserves as lower than previously expected erased the previous gains and sent PAL to just slightly above its all-time low valuation.

PAL has spent considerable capital trying to realize returns from the Lac des Iles, sinking $91 million into the mine. Expectations that one of the continent’s only palladium miners could turn that investment into returns have dissipated, however, and the market has responded in kind.

The miner has shown signs of being oversold, and thus due for a pop for some time. A month prior PAL’s 14-day stochastic RSI went down to a level of 0.00 for most of the week and the 14-day RSI neared a key level of 30. On the fundamentals side, compared to its fellow junior miners, PAL also exhibited impressive net margins. Both indicated a strong chance for the stock to breakout.

As PAL flirts with its low point, the chance of breaking up in the near future seem to be getting slimmer. The price movement is forming a falling wedge, which is bullish. But the stock has yet to test the resistance line, indicating it may fall even further before a buy signal is triggered, or possibly cross its 23 cents a share bottom.

The last analyst to weigh in on PAL was CIBC on April 4, who upgraded shares of the company to “sector perform,” or neutral, while raising its price target from 45 cents to 55 cents a share.

For the time being, PAL remains far below that target. Shares of the junior miner  fell 7.22 percent to hit 25 cents a share.

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