Market Observations for the Coming Week: CRASH PATTERN NEGATED! The SPX pulled back correctively into the Wednesday FOMC statement and the lack of an impulsive decline NEGATES our crash pattern. Still, our gut still tells us that the market should be in a correction mode until mid-November but a test of the highs is likely during that p
10/29/14 (Commentary for Wednesday) The SPX peaked early and declined into the FOMC statement. The SPX held up well after the "end of QE3" statement and the hawkish guidance - just a simple EW a-b-c correction so far. Early weakness on Thursday should bring in more buying - in our opinion we have rallied in "price and time" beyond the point of "a corrective bounce". A lot of under-invested money managers and retail investors want to buy this market. We still feel that the markets will be in correction mode until mid-November even if some indices make a test of the highs. The SPX closed again above the 50-day MA and that brought in some buying near the close. This 5+ year old bull market may have "gotten scared enough" after the 10/15 flash crash - the VIX spiked over 30, the highest in three years and the Bullish Percent in the NDX fell to 30% - the lowest in three years and a Buy Signal. Ideally, a 20% or so correction in the SPX by mid-November would set us up nicely before for a holiday rally, but we may only get a retest of SPX 1820 . In any case, prudent investors should create a shopping list here among some beaten down sectors (oil stocks, tech stocks ...) that should be bought into mid-November if we get another leg down. Everybody claims that they want a market pullback in order to buy, but when the time comes they are too scared to pull the trigger. From a big picture point of view, we do think that more correction is still likely into mid-November - perhaps more correction in time than price - but this should not derail the long-term bull market in our opinion and we are expecting the bull market to extend into 2015. Gold was hit for another leg down after the FOMC and the GDX and GDXJ made lower lows - we do think that that an important PM rally is close by. The weakness in oil and commodities is drawing comparisons to September 2008 before the big plunge in stocks - but the grains, PMs and oil are trying to bounce here. The FOMC statement gave the USD a bounce. Crude oil bounced today and may be close to an intermediate low. The market is still viewing a move under $80 as a deflationary threat to the world economy. Bonds pulled back as stocks soared.
- Big Picture on Stocks (UPDATED) - The SPX looks like it wants to test the highs here but more corrective action is expected into November.
- Big Picture on PMs (UPDATED) – The GDX and GDXJ took out the December lows and gave us 5-waves down on the Weekly chart. The PMs only gave us a week reversal attempt on Friday and we made new lows on the GDX and GDXJ after the FOMC statement.
- Stocks – The SPX invalidated our "proposed crash pattern" on Monday and we reversed higher into the FOMC statement - today's decline looks corrective so far. We're inclined to buy early
- Gold - The FOMC statement gave gold another leg down with the GDX and GDXJ making lower lows.
- Silver – Silver needs to show some relative strength here with gold on Tuesday or risk testing recent lows.
- Bonds - Bonds were pressured by the stock rally.
- Crude Oil – Crude oil is fighting to hold above $80 - a break into the 70s will have traders selling the SPX.
- Dollar Index – The FOMC statement gave the USD a big bounce at the expense of the Euro.
TURNING POINT DAY:
The turn windows for this week are 10/27 and 10/30-10/31.
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$0.145 -0.020) – 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, $1.15 -.05) - 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$7.10 +.18) – 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, $0.0653 +.003) – 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, $.030 -.000) - 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.