Avesoro Resources (LSE:ASO) has seen its share price plummet over the past 6 months from highs of 290p in April down to today’s 163p. A strong fundamental story gave the share a boost at the beginning of the year as gold started its pullback, but it seems the precious metals spot price decline finally weighed in on Avesoro’s stock performance.
As with Hummingbird Resources (LSE:HUM), which we covered last week, shareholders of Avesoro may need to wait for confirmation that gold has reversed its current downward trend for price recovery. As we have discussed before, there is still uncertainty on whether gold has further lows to visit, but the general belief is that it, as well as other beaten-down commodities, will likely rally at some point in the near future. Avesoro could well offer a good leveraged play on the next resurgence in the gold price with every dollar premium adding to its bottom line.
A look at the gold producers somewhat grim chart shows the stock is clearly oversold with the Relative Strength Index (RSI) now a lowly 9.4. You’ll notice the price hit 150p as a result of one large transaction on Friday and this is the current support level. Should that fail, late 2016 lows of 142p are the next level of support, although its hard to justify such a valuation which would discount the progress the company has made this year. Finally, my worst-case level of support would be the diagonal dotted line at 136p. I would be amazed if this is called into play but a continued tumble in the gold price below its recent low of $1161 might entertain this.
Looking at the near-term target levels, the 190-200p zone appears the first major obstacle. The 50 Day Moving Average (DMA) is in this area (although it’s swiftly moving lower). A move above the 50 DMA is an important confidence boost. Moving back into the stock’s previous upward channel currently requires 193p is broken and there’s general horizontal resistance at 201p. Once gold reverses – and the move should be quick – Avesoro shareholders will be rooting for a regain of the 200 DMA before an assault on previous highs of 270p and 290p.