Market Observations for the Coming Week: The SPX has had fifteen consecutive months of making new highs - the last time this happened was in 1995-1996 after which the SPX rallied for two more years. Despite the chance for a scary fall correction (~15%) , we believe the market is in a long-term bull market that could run into 2016.
9/16/14 (Commentary for Tuesday) The ES declined to our 1970 target early Tuesday and then broke above the 1977 pivot on news of a stealth Chinese QE program. When the ES back-tested 1977, a low risk entry was made. The DJIA closed at an all time high but the SPX and NDX both lagged and new NYSE lows came in higher than NYSE highs. Looks like we may get some divergent highs going into the September 24 New Moon and this could set us up for a rocky Oct/Nov period. The pullback into ES 1970 looks like a 4th wave correction of the rally that started on 8/8. We're expecting some volatility after the FOMC minutes on Wednesday but our inclination is to buy dips in the SPX for a rally to make new highs. Falling commodity prices have built a specter of a big deflationary event recently - but oil and copper prices reversed hard today on news of a Chinese QE program. From a big picture point of view, we do think that a 10-15% SPX correction is possible by October/November but this should not derail the long-term bull market in our opinion and we are expecting a rally into 2015. Gold stocks rallied with the SPX but gold and silver still looked weak - a test of $1200 and pivot reversal back up will be our signal to get long the PMs. Bonds bounced correctively today but still looks lower. The Euro should have a little more rally up in its corrective bounce.
- Big Picture on Stocks (UPDATED) - The possibility of a 10-15% SPX correction into October/November is high this fall but the long-term bull market should remain intact into 2015. The reversal up in the SPX today looks like the start of a 5th wave higher into 9/24.
- Big Picture on PMs (UPDATED) – The high in gold and silver on 7/10 appears to be a major top and the PMs are pulling back into October - the break of $1240 Thursday implies a test of $1200 soon.
- Stocks – The ES tested our 1970 target and reversed higher - the 4th wave pullback looks complete and we're looking for new highs by 9/24. We're looking to buy any SPX weakness after the FOMC minutes.
- Gold - The GDX made a lower low early today but GDXJ bullishly diverged. An ideal buy setup for gold would be a "pivot reversal" at $1200 that would clean out the bulls and leave a tail on the daily candlestick.
- Silver – Silver is bullishly diverging from gold since Friday - a last leg down to $18.35 or so is possible by Wednesday.
- Bonds - Bonds continue to sub-divide down - looking for more weakness in advance of the FOMC minutes on Wednesday.
- Crude Oil – Crude oil roared today on news of a Chinese QE program.
- Dollar Index – The USD is rolling over here in advance of the Scottish referendum on independence.
TURNING POINT DAY:
The turn window for this week is the 9/15 turn window.
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$0.205 -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 (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, $1.38 -.01) - 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$8.02 +.04) – 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, $0.0613 -.0044) – 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, $.0205 +.0005) - 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.