FDR and the anatomy of a price breakthroughPreviously I stated that a discussion of how the arrival of FDR stock margin eligibility could benefit our share price ought to wait until we were closer to $3.00. $3 being a common share price level at which the more aggressive brokerage firms will extent margin – granting between 25 and 50%.
But now, given the perfectly orchestrated tease hinting at visible gold in the pending cores mentioned in last Friday’s news release, I may be too late if I wait any longer to cover this topic.
Especially given the ideal drill-hole location of those pending assays, poised to radically expand the Froyo Zone.
Regarding margin lending leading to a share price breakthrough, there are three key questions to which FDR longs might want answers:
- What share price would we have to achieve to be “safely” in marginable territory?
- How many new dollars of share purchases would it take to get there?
- Once we hit this new high, what kind of follow-through might the built-up momentum generate?
Any attempt to put hard numbers on this is largely a matter of opinion. But we do have the May 1
st, 2020 precedent of Great Bear’s dramatic price breakout through the last walls of offers remaining before $10. How comparable is our January 2024 FDR to the GBR of 44 months ago? In some ways FDR actually looks better.
GBR’s share structure must have had a larger float than FDR, because while I think the institutional ownership percentage was similar, GBR had only around 15% insider ownership compared to FDR’s 25%. GBR may have also had a greater overhang of private placement shares about to become free-trading.
Conversely, working against FDR in this beauty contest is the fact that GBR had failed to surpass the $8 price zone for around seven months. So, there was a certain stable base that had been built under their market (which FDR cannot yet match). The Covid market sell-off of March 2020 did force GBR briefly below $4. (Some over-extended GBR buyers facing margin calls?) But it recovered quickly.
On the other hand, that is exactly why FDR is in a different stock market environment. The money that left GBR in March 2020 might have been easily diverted from intentions to re-buy Great Bear by the deep discounts suddenly available on the Magnificent Seven tech darlings. Tesla must have seemed especially tempting, though hindsight always makes things seem obvious. FDR bulls are not facing any such distractions at the moment.
So, to answer the first question I posed, how high would FDR have to move before margin might come into play materially? GBR was already in a situation, around $8, where the margin cut-off was safely in the rearview mirror, five dollars or a 60%+ price decline distant. Whatever amount of margin was already being used to own GBR stock at the start of that first day in May, the actual breakthrough past $10 might not have been making much use of new margin.
(Keep in mind, safety is a relative term. Plus, momentum is everything. And momentum includes both size of new purchases and the speed at which they are made. If offers cannot be reloaded quickly enough, the offer “line” simply gets overrun. I suspect the vast majority of the historic trade volume on FDR is *not* computer-driven.)
Add in the fact that by May 2020 Chris Taylor had already made clear he was in talks with numerous potential buyers (as anyone would have sensibly expected), and people simply assume the stock is headed higher for good reason and join the move.
Therefore, $8 is likely not necessary for any would-be FDR margin buyers to feel safe. Such speculators are expert at divining the essence of market mood and potential. I expect anything above $4 and the more aggressive bulls will start committing fully.
Stay tuned tomorrow for the second half of my discussion on this most-discussable of FDR topics.