Market Observations for the Coming Week: The SPX turned back up on the Tuesday after a monthly expiration - we may now rally into the July 26 New Moon. This should be a year of mean reversion for both the SPX and the precious metals - looking for a year of multiple 10% corrections for the SPX and for some strong rallies in the precious metals. The 4th year of the decade tends be poor for the stock market according to the decennial cycle. With the latest downward revision of Q1 GDP to -2.9%, we now have at least one quarter of negative GDP that we've predicted for 2014 at the beginning of the year. The stock market may have a lot to deal with as we enter July.
7/23/14 (Commentary for Wednesday) The SPX made an all-time high on good volume - we may now be in a rally mode into the July 26 New Moon - we are inclined to buy early weakness in the SPX and NDX on Thursday. However, the NDX and SPX appear to be close to making an EW 5-wave up pattern as we approach the New Moon - this could make a short-term top. A Large Divergent Decline in the Option Premium Ratio (.88 -.73) also argues for a decline soon. It appears that the German DAX and the FTSE may be in a 3rd wave down on the daily - the US markets are in their grasp. Geo-political tensions and recent distribution days should give investors caution here. The Russell 2000 did break a down trend line on the daily chart and this is a positive. The SPX is only 13 points from the round number of 2000 and we may reach this by the weekend. 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 may be a leading indicator of a summer top. Gold appears poised to take out the July 15 low by its 55-day step out on July 28. We still believe that gold made its daily cycle low on July 15 but we the charts look like a downward break is possible. An impressive Fibonacci step out cluster on monthly, weekly and daily time scales targeted last week for a major low in gold and we may have seen it. The GDXJ pulled back today one day after its 55-day step out. The bonds rallied in a 5th wave higher on the hourly chart and have been correcting the move since Thursday.
- Big Picture on Stocks (UPDATED) - We're looking for the SPX and DJIA to hold up early this week but another leg up into the July 26 New Moon is likely.
- Big Picture on PMs (UPDATED) – Gold has a 55-day Fibonacci step out on July 28 - and we are expecting an important low. An impressive Fibonacci step out cluster on a monthly, weekly and daily timescale argues for a major low in gold this week or early next.
- Stocks – The SPX and NDX rallied on good volume Tuesday and the SPX gave us a new all-time high. We should challenge SPX 2000 by the weekend.
- Gold - Gold appeared to have made its daily cycle low on July 15 at $1292 but the price pattern suggests that a break below is possible by the 55-day Fib step out for gold on July 28.
- Silver – A move to $20.3 is still possible this week as the PMs start to look ragged.
- Bonds - Bonds are may be close to finishing an EW a-b-c correction on the hourly chart.
- Crude Oil – Crude oil is correcting what appears to be a first leg higher in a new bull market.
- Dollar Index – The USD continues to rally - the pattern looks higher.
TURNING POINT DAY:
We have a turn window coming this week on July 21-22 and July 26 (the New Moon).
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$0.20 -.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 -.005) - 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, $1.61 +.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$8.39 +.10) – 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, $0.046 -.004) – 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, $.07 -.00) - 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.