Market Observations for the Coming Week: The SPX found support at the daily pivot line at 1973. Just a corrective bounce into 12/23 could lead this market open to a another leg down.
12/17/14 (Commentary for Wednesday) The SPX tested the daily pivot at 1973 and the 150-day MA going into Tuesday's close and then rallied impulsively from the open today. We're looking to buy any pullback on Thursday or Friday for a rally into 12/23 - if the rally is corrective, we could see another leg down in the correction. The Option Premium Ratio made another rally again (1.38 to 1.45) and argues for more market rally on Thursday - it appears that today's SPX rally was met by large put buying and this is contrary bullish. Some of our indicators (as oversold as they were going into the flash crash on 10/15) suggest that we could rally hard into option expiration this weekend. Oil sold off late in the day and may test the SPX's resolve going into early next week. The junk bonds used to fund "fracking" operations may be in peril of default if the selloff in crude extends to 2015. Gold sold off after the FOMC minutes but gold stocks rallied hard with the broad market. Gold tested its downtrend line at $1239 last week and turned down - taking out $1170 would be very bearish. Crude oil bounced correctively off of 5-year lows but more declines are possible until US shale production gets curbed in the near term - rising US crude production is destabilizing world energy markets. The market is still viewing the move under $80 as a deflationary threat to the world economy but US citizens are getting a major tax cut.
Big Picture on Stocks (UPDATED) - The SPX made a low near the 12/12-12/15 turn window - we're looking for a bounce into 12/23 - if the bounce is corrective, we could see another leg down.
- Big Picture on PMs (UPDATED) – The GDXJ took out its 11/7 low but the HUI held above - bullish divergence. Gold needs to rally impulsively above $1221 to get us going to the upside.
- Stocks – The SPX rallied impulsively today even as crude oil sold off late - we're looking to buy a dip for a rally into 12/23.
- Gold - Gold sold off after the FOMC minutes but gold stocks rallied with the market.
- Silver – Silver declined by 10% since last week - we're looking for a rally on Thursday.
- Bonds - Bonds are rallying strong from a "cup and handle" pattern on the daily chart.
- Crude Oil – Crude oil bounced today but the price action looked corrective.
- Dollar Index – The USD looks like it needs a one more leg down to complete a corrective pattern.
TURNING POINT DAY:
Our turn windows for this week are 12/12-12/15 and 12/17.
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$0.080 +0.005) – 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, $1.78 +.06) - 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$7.63 -.01) – 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, $0.0496 +.0001) – 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, $.0275 -.0001) - 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.