America's battery corridor

Stock Watch

by Regina Meani

Market analyst Regina Meani discusses Arizona Lithium (ASX:AZL).

On 20 December 2017 in the United States of America an Executive Order was signed for a ‘Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals’ which made the development of lithium projects one of the priorities for Federal US agencies.

Arizona Lithium Limited (ASX: AZL $0.155) is an ASX listed company focused primarily on the development of low-cost lithium projects. The company’s centre of attention is on the Big Sandy Project located within America’s battery corridor on interstate I93 between Phoenix and Las Vegas. It comprises 311 Bureau of Land Management (BLM) claims in Arizona, covering approximately 25 sqkm.

Big Sandy holds strategic weight for its close proximity to the Tesla Gigafactory which is approximately 960km by sealed interstate highway to the north-west.

The company’s second project is located in New Mexico, USA within the Playa Lake system. The Lordsburg project’s basin comprises clays, silts and sands, similar to the lithological sequence in the Clayton Valley owned by Cypress Corporation Limited. The Clayton Valley resource is claimed to be a world class resource of lithium-bearing claystone in South-west Nevada USA.

The share price for Arizona Lithium built a large head and shoulders base from early 2017 and was completed in October 2021 with the rise through 7c. The initial breakaway from the phase produced a surge to 15c, doubling the price in a few short weeks. In reaction to the steepness of the rise the price pulled back towards the base pattern in what is known as a secondary opportunity to buy. By January this year the price had reached its initial objective from the base at 19c where another pause and pullback occurred.

The entire action, following the initial steep rise has seen the price fluctuations develop along a lesser more sustainable gradient. Within the new upward path, the price achieved a new high at 26.5c in early April with overbought conditions producing another pullback to support. The price appears to have found a turning point in the pullback on 10 May at 12.5c.

Over the near term we expect that the price volatility will continue with some resistance around 17c and then at 19-20c and at the recent peak level at 26.5c. The danger to the new upswing would be the need for a deeper pullback within the broader upward path which could be triggered by market conditions. A dop below 12c would be a cause for concern with a risk back towards 7-9c.

In the case of such an event, it may be considered another buying opportunity. We caution both traders and investors to apply appropriate stop loss levels. Beyond the coming period of uncertain volatility, we anticipate that the stock has the potential to surpass its recent high towards 35c and 50c and possibly higher.

While we are roaming the valleys of the US it is appropriate to update their market which has fallen significantly. Looking at the Dow Jones Industrial Average we find that the market has fallen over 17% from its peak in early January this year. The expanding phase which has been developing from April 2021 is characteristic to this index. There has been volatility around the lower limit to the phase as it has been twice breached, on 12 and 18 May. On 12 May the breach was quickly recovered but not sustained, followed by the most recent breach.

At this stage, for a recovery to be viable the index needs to rally through and maintain a level above 32000 points. In some measure of support for a rally, the indicators are registering oversold but the shear overhanging weight of the phase suggests that a recovery may not be sustainable and would be overshadowed by further downside. The next main juncture of support lies in the 29000-30000 zone and this area may need to be tested. At this stage a break below this area is not indicated but the level should be used as a guide going forward as a penetration would create an increased risk to the 25000-26000 area.


Subscribe to our Daily Newsletter?

Would you like to receive our daily news to your inbox?