FDR and the math of the $2.50 levelThis morning’s news metallurgical news was encouraging, I think. Not being a geologist, I’ll have to wait for more specialized commentators to weigh in. But while we await such contributions, our price action deserves a more detailed look.
I said the other day I now thought we could hit a $2.50 share price by the end of June. That’s only nine trading days away. Is there any way to apply some simple math to this question?
As mentioned previously, this kind of discussion is really just a fun pastime for us long-term holders. But for anyone looking to take a position for the first time, or perhaps someone angling to do a little momentum trading over the run-up to the first Buese assay release, this could be a valuable reasoning exercise. So let’s give it a try.
The first step would be to make some reasonable estimate of the expected supply of shares available to the market, below $2.50, during that time. We know the insiders are generally loathe to sell, at least without pre-arranging a non-disruptive block trade. They don’t want to undermine public confidence in their stock.
Eric Coffin, if I read his Friday comment correctly, is currently buying more, not selling. The institutional buyers are probably accumulating too, not trying to take profits. That leaves the rank-and-file retail shareholders.
How many medium to large-size longs are anxious to exit FDR as become steadily de-risked with each new press release? Probably not many.
Next, if we assume 10% of retail shares are available for sale, and only half of those are available below $2.50, then we get (10% * 50%) * ~35% * 61.4 million shares O/S = 1.07 million shares.
What has our average volume been in the last 6 trading days (from June 10th)? Around 1.2 million shares on the Venture Exchange, with likely another 600 or 700K on the other exchanges. Total of nearly 2 million shares traded.
So… with these assumptions, at the recent trade volumes, we’ve got nine days left in June to burn through three days’ worth of supply. Granted, volumes could slow down, some additional retail holders could dump shares to meet unexpected cash requirements, and some additional selling could come from momentum traders taking profits. Even so, I think $2.50 by the end of June is a conservative prediction.
And moving into the $2.50 - $3.00 neighborhood finally gets us to the threshold of margin eligibility. I previously predicted that special milestone might add some additional buying pressure under FDR’s share price. Maybe a lot, maybe a little, maybe none. But definitely a fun time to be long.