Hi catalyst
What we can say is that falling turnover and tightening range is usual the closer we get to the breakout point of a pennant formation.
And the textbooks tell us that this sort of formation in an uptrend usually results in a breakout to the upside around 70% of the time.
However, the pennant that has formed on Talga's chart is not normal.
Pennants are typically small and resolve within six weeks, Talga's is large, in fact very large, and has been building for over a year.
An indication that if it does breakout to the upside the move will be explosive and likewise if the formation breaks down the fall do the downside would be equally dramatic.
The candlestick chart tells a somewhat different story, it is saying there has been significant daily drift in the share price for the past six months and that occurred after a textbook bull flag pattern the implication being that the positive news the market was expecting didn't come through and investors have been treading water ever since.
(Comment: The fact the two charts seem to be saying different things does not mean one is right and one is wrong, what it means is that because the point and figure chart only records significant changes or reversals of direction in the share price it doesn't record very small price moves or sideways drift so what we get with the P&F chart is a tighter more dramatic pattern).
You have asked if the story in the post still holds...good question.
I'll answer that question in two parts, first in terms of a closer look at the P&F chart and secondly in terms of the news story.
Here's a close up version of the P&F chart (twelve months compared to one above which is five years)..
What is clear from this chart is that for the past five months trading has been tracking the bottom of the formation. That tells us sellers have been in control and could indicate either (or perhaps both), that sellers are pessimistic about the short term outlook but still hold out hope for the future or that they've been holding the price down and accumulating.
Given the precision with which the share price has so closely track the bottom my money is on the latter.
We also know from the daily volume chart that over the past two months average daily turnover has dropped from around 1.4m a day to around 700k a day consistent with the notion that turnover drops as we approach breakout (or breakdown).
So far as the news story goes we have heard nothing that would put a serious damper on the otherwise positive long term outlook that is ahead for the EV industry, Li-ion batteries or Talga's plans to produce clean green anodes. In fact probably the opposite. The outlook for EVS continues to get stronger, more Li-ion battery plans have been announced, demand for battery metals and minerals continues to strengthen, news is still expected on Talga's the drilling campaign in November, the LKAB/Mitsui JV and on progress with the EIS for the anode plant. Local press reports tend to suggest the political attitude to mining is turning positive in Sweden and there is little in the way of public opposition to Talga's plans.
So, taking all of the above into account, the way I see it is that if the drilling results come through in November and confirm the orebody(ies) is likely to be much bigger than previously thought, of consistent quality and possibly continuous, we are likely then to see the the partners commit to a JV subject to a couple of caveats including positive feedback from customers and an acceptable funding package being cobbled together.
We know for sure that the drilling campaign is a big factor for investors because it lead to a breakout last month when the ground was cleared to reveal high quality ore sitting just 1.5 metres below the surface.
As someone said a couple of days ago just imagine if the orebodes are actually just one orebody and the whole thing can be mined underground...
In short then, I believe the story is still intact but that the timelines have been stretched and that is what is putting investors on edge.
Provided we get a string of positive announcements over the coming months regarding drilling results, the JV, funding for the anode plant, approval to mine and positive feedback from customers then I fully expect the share price to take off, if on the other hand any of these critical steps are missed then investors will lose faith and the dream of Talga turning into another BHP will be lost.
I remain realistic but I also remain very, very positive.
Hope this helps...
(20min delay)
