FDR and the anatomy of a price breakthrough – Part IITo answer the second of my three questions from yesterday’s post, just how much buying would it take to push FDR’s share price safely into marginable territory? Yes, I hear you, and I agree. I am truly now performing an exercise in imagination and hypothesis construction. But we do have a strong comparable to examine: Great Bear Resources on May 1st, 2020.
If memory serves me, the start of the “Great Great Bear Breakout” came with about 90 minutes of trading remaining and the stock at around $9.00. There had been no news that day, nor was any expected early the next week. May 1st was a Friday, so GBR automatically benefited a little from the fear of missing out on events possibly transpiring over the weekend.
Something like Cdn$300,000 of anonymous buy orders hit the market, apparently without price limit, as the existing offers were almost instantly vaporized to three or four layers deep. Around 33,000 shares were snatched from a book where there were not really that many shares offered for sale.
I think any reasonable observer would conclude it was only one single “reckless” initial purchaser, owing to the speed, and what I would presume would be difficulty in coordinating split-second timing by multiple buyers. This initial buyer pushed GBR to within $0.20 or so of the $10 mark.
The follow-through, however, especially in the final hour of trading, involved numerous different houses. As one might expect, the $300,000 jolt and arrival at the psychologically important $10 threshold was probably enough to set off pre-programed system alarms on the desks of a number advisors and traders who had been tasked by clients with keeping an eye on GBR. Some might have had mental stop-buy orders should GBR break above $10. Enough of them duly piled in to push GBR nicely over $10.
I forget the closing price for the day, but I clearly remember the sheer ecstasy over on CEO.ca. In any event, after May 1st, Great Bear hardly looked back for three months, almost touching $20 by the end of that time.
So how does FDR measure up? Our order book typically shows something like 100,000 – 150,000 shares on offer. Even including some iceberg depth, $300,000 hitting the market hard and fast might buy everything up to $2.50.
How likely is this scenario? We have around $35 million in free-trading shares held by retail investors. $300,000 is less than 1% of this. Does there lurk within our existing retail shareholder base anyone who can easily write that kind of cheque? Undoubtedly. Though they likely didn’t get rich by throwing their money around carelessly.
Waiting in the wings behind such a spark plug, however, sits an untold amount of new money in the hands of other investors just waiting to allocate capital to a hot sector or a hot stock. And this, I think, is the answer to the third question about how much short-term follow-through might be expected after an initial breakthrough. How much? At least enough to get the price to a level where margin buying becomes “safely” attractive: $4.00.
And beyond the short-term? Let us take $4.00 as the initial objective that will trigger a *second* round of follow-through buying. This second batch of new buying would come mainly from additional outside money, likely paying in full for their shares. But remember this second round of buying would get an initial boost from existing holders levering up on margin to varying extents.
How large a boost? If only 3% of that existing $35 million of retail shareholders uses margin, and uses only half of their entitlement, we are looking at around another $200,000 of buying power ($500,000 if adjusted for a $4 FDR price). And that alone might be worth another dollar per share in upward momentum.
How far could the medium-term follow through from a price breakthrough ultimately go? Assuming drill results continue to prove up Antino’s potential, I think Great Bear’s share chart proportions could easily apply. They ended up in July 2020 at around 57% of their ultimate take-out price. Say FDR’s take-out price is $11.25. That suggests our share price stabilizing at an interim level around $6.40.
Not a bad finale to the Spring 2024 season. Not bad at all.