Market Observations for the Coming Week: WARNING: we are looking for the August-October period to be highly volatile for several markets (See our 8/6/15 talk on the Shemittah cycle - "Can the Stock Market Crash Going Into October - Weighing the Probabilities" https://www.youtube.com/watch?v=5tgPXoA9x00). Several important stock market cycles are due to bottom: the Shemittah cycle (7-yr), the 4-yr cycle, and the 50-wk cycle. We should also see extreme volatility in gold, bonds and commodities. Holding a large position in cash as we enter this period is recommended. The SPX rallied in a 4th wave into the Full Moon timing window centered on 8/29 - the Option Premium Ratio argues for a decline Monday. We may see a 5th wave down to test last week's low before the 9/4 NFP report.
08/31/15 (Commentary for Monday) The SPX gave us a quiet decline today compared to last week but the key biotech sector broke down and the IBB looks like it is heading to IBB 320. The SPX appears to have started the 5th wave down to test the lows from 8/24. Oil opened lower but shot up to 49.33 on violent short covering action. Crude oil rallied in an EW 5-wave impulse pattern from the 37.75 low and this could be marking a 3-yr cycle low in both oil and the CRB. The SPX gave us what appears to be a 4th wave bounce on the daily chart into the Full Moon and we turned down on Monday in a 5th wave to test last week's low. The ES is down almost 30 points on weaker than expected Chinese PMI data. In a week that saw copper make a coincident low, it appears that oil may have dropped the CRB into a 3-yr cycle low last week. Our bias is that the bounce from 8/24 is a 4th wave rally and that we will soon take out ES 1813 in a 5th wave down - a close below 1813 by September 4 would confirm that a bear market has started. The SPX tested the October 2014 low but we are not expecting a "V-bottom" this time. Last week's price action confirmed a four-year cycle top in the SPX and suggests a 20% decline into October and we currently favor a corrective pattern similar to 1998 where we had a 7/20 peak and a scary decline into late August before a big reversal up into September and then a lower low into October. Gold gave us a $100 rally off the August lows and should bottom between $1120 and $1106 if bullish, but there may be a concerted effort to push gold below the August low at $1072 by the NFP report on Friday. We still contend that the stock market could still manage a 20% correction as we bottom the 7-yr cycle in the Aug - Oct period and our work pointed to an initial low in the 8/24-8/25 turn window followed by a lower low in mid-September. The USD rallied today but failed to take out Friday's high. Oil staged an epic EW 5-wave rally off of 37.75 on the hourly and we may have seen a 3-yr cycle low in the CRB.
Big Picture on Stocks (UPDATED) - With China leading global markets down, commodities and commodity stocks are being pressured. We are expecting a big correction from August to October which should make a 4-yr cycle low and 7-year cycle low. The SPX may have finished a 4th wave bounce on 8/28 - we are looking for a reversal down on on Monday.
- Big Picture on PMs (UPDATED) – We believe that gold made an intermediate low at $1072 and followed that with an EW 5-wave rally on the hourly chart to $1169. Gold just gave a quick EW a-b-c correction after the Full Moon - we're looking for a run to $1200.
- Stocks – The SPX gave us a quiet 20 point down day which actually saw the financials in the green as the biotechs sold off - the ES is down Tuesday morning on weak Chinese PMI numbers.
- Gold - Gold gave us a quick correction on Monday and then reversed higher - we're rallying into early Tuesday.
- Silver – Silver gave us a quick correction into Monday and then turned higher.
- Bonds - Bonds sold off on Monday and may be impulsing down.
- Crude Oil – Oil soared again and may be confirming an important low in commodities.
- Dollar Index – The USD rallied Monday and that pressured gold and the Euro.
TURNING POINT DAY
Our turn windows for this week are 8/29 (Full Moon) and 9/4 (the NFP report).
Depression Beater Portfolio: (This portfolio this week is just a sample of my own portfolio - no recommendation to others is implied or intended)
WEEKLY COMMENTS: Update for 7/05/15: The CDNX remains mired in a deep, historic bear market since the April 2011 which led the turn down in the gold and silver market by a few months. To us, junior mining stocks are just trading affairs unless the 50-day MA crosses up through the 200-day MA. In our best guess, we feel that the CDNX and the gold mining juniors could bottom by October in advance of our target of April 2016 for a final low in gold and silver - typically the gold mining stocks bottom 6-9 months before final lows in gold and silver. We have read that up to 45% of junior gold/silver stocks only have enough cash on hand to continue operations for the next quarter. Many recent equity-based financing are small and done just to keep the lights on. Until the CDNX turns up , it is best just to focus on well-financed juniors with great assets and positive cash flow. Now is the time to follow these stories since we are in the late stages of this brutal bear market.
- Great Lakes Mining (GLKIF, C$0.0620 +0.0040) – NEW Recommendation 7/5/15 - This is a unique situation in the high-end graphite market. This company is scheduled to open a factory to upgrade graphite for specialty applications by October. This vertical integration business model adds a new dimension to this company and is worth following.
- Aroway Energy (ARW.V, C$0.010 -0.000) – This western Canadian junior is part of a very sweet JV deal with a private partner in the Peace River basin – it's production share should climb from 669 BOE/day (75% black oil) to over 1200 BOE/day later in 2012 – management has selected a good slate of properties for drilling and it is bearing fruit. Buy on dips. Use a 20% stop from purchase price.
- Evolving Gold (EVGD.TO, C$0.047 -.003)- UPDATE: This stock has two world-class finds in Wyoming (Rattlesnake) and a potentially huge find on the Carlin Trend in NV. The problem is that the company needs a financing and could be forced to sell a world-class asset for pennies on the dollar.
- Uranium Energy (UEC, $1.2400 +.09) - UPDATE: Uranium prices are recovering and the fundamentals are getting a perfect storm. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer.
- Energy Fuels (EFR.TO, C$4.56 +.22) – Finished acquisition of STM.TO in early September - building up a position as a strong US producer of uranium in a tight market.
- Prophecy Coal (PRPCF, $0.0308 -.0092) – UPDATE: This stock needs to get its Mongolian coal mine into a positive cash-flow situation to support its power plant project and other endeavors without diluting the common shareholder to zero.
- Gryphon Gold (GYPHQ, $.0180 +.0000) - UPDATE: De-listed stock. Good asset but needs a cash infusion and maybe a partner. Good leverage to gold.
JUNIOR MINING FAVORITES:
(These companies are speculative - best to keep them to 10% of a portfolio with 30% stops based on purchase price. Buy a basket to diversify risk)
RULES FOR JUNIOR MINING INVESTING:
1) Keep to 5-10% of a portfolio.
2) Due your own Due Diligence.
3) Maintain a price stop of 30% of purchase price or whatever your Technical Analysis suggests is prudent.