A key support level has formed in the chart of Fortuna Silver Mines Inc. (FSM). If this level is broken, a breakdown could occur.
FSM is a Canada-based precious metals producer. Its business operations consist of mining and related activities in Latin America, including exploration, extraction, and processing of silver- lead, zinc, and silver-gold and the sale of these products.
The company performed fairly well last year, even amid temporary shutdowns of operations in Mexico and Argentina. For the full year 2020, FSM produced 7,133,717 ounces of silver and 55,349 ounces of gold, or 11.3 million silver equivalent ounces.
As of the end of the quarter, the company had $86 million in cash, compared with $148 million in long-term debt. It has a current ratio of 1.7, indicating it has enough liquidity to handle short-term obligations. FSM has an operating margin of 20.5%.
The company’s sales and earnings were down year over year, but earnings are expected to be up 28.57% for the fourth quarter. The stock has a fairly high trailing P/E of 55.08, but its forward P/E is low at 8.22.
The stock has shown strong momentum over long-term, but has shown recent weakness, which has led to a “Neutral” rating in our POWR Ratings system. It is also reflected in the chart below.
Take a look at the 1-year chart of FSM below with added notations:
FSM has formed a major level of support at $6 (green) over the past six months. The stock has rallied off that mark several times already, and now it seems to be falling back down to the $6 level again. Another bounce could follow, but if the support were to break, lower prices should follow for FSM.
If the stock were to break below the support, a short position could be entered with the expectation of a breakdown.
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FSM shares fell $6.88 (-100.00%) in premarket trading Tuesday. Year-to-date, FSM has declined -16.02%, versus a 3.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Christian Tharp, CMT
Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock.
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