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 Option Premium Ratio hit 1.67 on Wednesday and argue that an important low was made - we're looking for the post-NFP rally to end by 10/6 but a run beyond SPX 2011 would have bullish possibilities.
10/05/15 (Commentary for Monday) Our Option Premium Ratio run pattern to 1.67 on 9/30 did give us a post-NFP rally as expected and Monday gave us a follow through rally day - taking out SPX 2011 will turn us short-term bullish. Our TRIN5 indicator posted an extremely overbought 3.07 reading and we are expecting a pullback to start early Tuesday - just a 3-wave corrective pullback would be bullish. The Option Premium Ratio made a run pattern last week to 1.67 - a level consistent with the important 8/24/15 and 10/14/14 lows - this implied a fierce post-NFP rally into this week that could test SPX 2000 before a big leg down into mid-October. Of special note is the fact that in Shemittah years, if the SPX closes 10% below the high, then a decline of 20% is likely into October - we did that on 9/28 when the SPX closed at 1882 - so after a C-Wave rally into this week, our bias is to expect another leg down into late October. We expect bonds to lead the next leg down in stocks into mid October and we may have seen a cycle high on Friday. Oil reversed up on Friday and lead the SPX higher. Our bias is that a major low was made at $37.75 and this marked a 3-yr cycle low in both oil and the CRB - however, we could see more testing of lows into late October. The late August price action in the SPX confirmed a four-year cycle top and suggests a 20% decline into October as 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 reversed hard after the NFP number and looks higher into Friday this week. Gold and oil stocks were market leaders today.
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 made a B-Wave test of the 8/24 lows on 9/28 and should give us a strong post-NFP rally before the next leg down into October.
- 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 should rally to $1160 into Friday.
- Stocks - The SPX should peak the post-NFP rally by 10/6 - just a 3-wave corrective pullback will be bullish.
- Gold - Gold reversed up after the NFP job number - looking for $1160 by Friday.
- Silver – Silver reversed hard up on Friday and rallied hard today - silver leading gold higher is good for the PM complex.
- Bonds - Bonds may have made a cycle high on Friday - an EW 5-wave down pattern on the bonds would imply that the short-term trend has turned down.
- Crude Oil – Oil reversed up on Friday and led the SPX higher - the XLE led the SPX higher today.
- Dollar Index – The Japanese Yen gave us a fake out high on Friday. We're looking to buy the Yen on dips. The Fed decision not to raise rates on 9/17 should give us more downside on the USD.
TURNING POINT DAY
The 10/6-10/8 turn window is key and so is 10/9.
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$0.0587 +.0000) – 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$0.0335 -.0074)- 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, $1.12 +.00) - 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$4.20 +.35) – 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, $0.0300 -.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, $.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.