Market Observations for the Coming Week: The SPX and NDX are finishing EW 5-wave rally patterns on both the daily and hourly charts as we approach the holiday weekend - we may be close to an important short-term top though the downside appears limited to ES 1890 into September.
8/26/14 (Commentary for Tuesday) The SPX squeaked out another all-time high today on a remarkably quiet pre-holiday session, but it appears to be making a short-term top. Europe appears to be falling into deflation and falling German rates are pressuring rates down in US Treasuries. Falling oil, grain and industrial metals prices are building a specter of a big deflationary event. Both the SPX and NDX finished hourly and daily EW 5-wave patterns into this week - this should give us at least a short-term top sometime this week. We made an important cycle low on 8/8 and after holding the 100-day MA, the SPX made new highs into today. However, after Labor Day, the door could be open for a much deeper SPX correction into mid-September - multiple geo-political issues are flaring and one of them should grab the market's attention soon - Thursday's tape will be key. From a big picture point of view, we do think that a 10-15% correction is possible by October but this should not derail the bull market in our opinion. While the VIX, the volatility index based on the SPX, has confirmed the rally, the volatility index for the Russell 2000, the RVX, has not - this was a leading indicator of a summer top. After bottoming on Monday, gold stocks reversed up today - we think the PMs are coiling here for a seasonal bounce that should start this week. Bonds rallied as capital flight from Europe strengthened the USD.
- Big Picture on Stocks (UPDATED) - The reversal off of 1890 on 8/8 feels like a major low was made - we're looking for a short-term high as we approach the Labor Day weekend. The possibility of a 10-15% SPX correction into October is high this fall but the bull market should remain intact.
- Big Picture on PMs (UPDATED) – Gold stocks bottomed on Monday and reversed up on Tuesday - gold stocks and gold are coiling for a seasonal rally into September.
- Stocks – The SPX grinded out another new all-time high - a short-term top is likely by Friday.
- Gold - Gold stocks finished a 5th wave down on the hourly chart Monday - and reversed up Tuesday. Gold and gold stocks appear to be coiling here for a seasonal rally into September.
- Silver – Silver is coiling for a rally into September.
- Bonds - Bonds rallied as capital flight from Europe drives up the USD and spills into Treasuries.
- Crude Oil – Crude oil was hit with massive long liquidation in the future's pit as prices test the lower $90s - we may have seen a seasonal low in natural gas at $3.73.
- Dollar Index – The USD continued to rally Wednesday on a plunging Euro.
TURNING POINT DAY:
The New Moon is exact at 9:13 AM on Monday, 8/25/2014 and could top the SPX.
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 2/14/14: On the CDNX, the 50-day MA has crossed up through the 200-day MA giving us a buy signal on the junior resource sector. At this stage we would only focus on those stocks that were washed out in 2013 and have adequate financing to carry them through 2014 drilling activity.
- Aroway Energy (ARW.V, C$0.2250 +0.01) – 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 (EVG.TO, C$0.010 -.00) - 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, $1.47 -.04) - 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$8.05 -.03) – 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, $0.0802 -.0000) – 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, $.0350 +.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 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.