Depression Beater Portfolio: - see below for new updates on Junior Miner Favorites - (This portfolio is just a sample of my own portfolio - no recommendation to others is implied or intended)
4/24/11 (Commentary for Sunday) A Large Divergent Decline in the Option Premium Ratio argues for weakness in the SPX early Monday. The PM sector is also due to bottom a 12-wk cycle low this week and gold's sideways consolidation last week should end sometime this week. Any weakness in the SPX this week should be reversed upward in a final run into late May/ early June but the risk is increasing. A declining US dollar should provide the fuel for the last speculative run into stocks before a substantial correction arrives to both stocks and commodities in early June. The speculative fervor of the commodity rally has been channeled into silver much like oil was the speculative favorite in 2008. The bearish divergence by the HUI may be corrected in the next couple of weeks but chances are that the big speculative move in gold and silver stocks will wait until after important cycle lows coming to the PM sector in late July/early August. The bond market is showing surprising resilience despite the obvious inflationary signals, however, we do expect a SIGNIFICANT AND RAPID REPRICING of long-dated US treasury bonds to happen by mid-May. Price patterns in gasoline argue for much higher prices by Memorial Day – crude oil could still see a super spike into the $120-150 area before a brutal bear phase begins. The Dollar Index fell again today – a mini-crash down to the lower .70s should help propel gold, silver and oil to their target highs by early June.
Big Picture on Stocks – From our perspective, we are the later stages of the stock market run from March 2009. The SPX got the scary decline into 3/14 needed to propel the last up into May/June. Our bias is for an "inflationary blow off" into the next Martin Armstrong Day in June 2011 at a time when the Fed plans to stop its QE2 campaign – some indices like the SPX could actually test their all-time highs. We should see a big correction begin in June.
Big Picture on PMs – The 12-wk and 48-wk lows bottomed around 1/28 amidst 52-wk lows in bullish sentiment and the latest low in PMs occurred on 3/14 – WE ARE NOW ENTERING THE ACCELERATION PHASE HIGHER in the PM sector – but we should get a short-term peak for gold (~$1511) in the 4/20-4/21 timeframe and then a pull back into the 12-wk cycle low during the week of 4/25. A strong rally into May/June to around $1650 gold and ~$53 silver is possible. The speculative juices are favoring silver over gold stocks at this juncture.
- Stocks – A Large Divergent Decline in the Option Premium Ratio (.82 to .70) argues for weakness early Monday in the SPX – looking for a brief pull back before the last leg up into May.
- Gold – Gold has been consolidating around $1500 since 4/21 – Weekly Reversal Timing from Starkey is due this week as is the 12-wk cycle low – a decline below last week's low should reverse up into the final run into May.
- Bonds – Bonds are showing resilience in the face of rising inflationary expectations and a crashing dollar – a larger retracement of the decline to 114 is expected.
- Crude oil – Oil rallied big on dollar weakness – the current leg up in crude will be propelled by a mini-crash of the dollar into June.
- Dollar index – The decline in the Dollar Index is picking up steam. The Dollar Index weakened further today boosting commodities - still looking for the Dollar Index to test the low .70s before June and this should translate into gold around $1650 and oil at highs for the year.
TURNING POINT DAY:
The reliable 12-wk cycle low is due for gold this week and this should translate to the broad market as well. Expecting gold and the SPX to make lows this week before a final run into May.
- Evolving Gold (EVG.TO, C$0.78 +.02) - Lackluster management and marketing have kept this gem back during a period of speculative enthusiasm for PM junior miners. But a world-class deposit in Wyoming (Rattlesnake) and a potentially huge find on the Carlin Trend in NV argue that this stock will be a big winner. Goldcorp took a 15% interest and that says it all. It is remarkable that this company with two rather obvious world-class deposits is failing to get any traction – IT HAS BEEN DEAD MONEY AND SHOULD BE CONSIDERED AS A SOURCE OF FUNDS FOR other PM juniors with a better looking chart.
- Uranium Energy (UEC, $3.85 +.06) – The Japanese nuclear plant cooling issues caused panic selling today in all things uranium – we are holding for higher prices. Uranium stocks are playing catch up to the rest of the commodity complex. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer. Adding on weakness.
- Strathmore Mining (STM.TO, C$.71 +.04) – Very undervalued uranium stock with huge reserves (+100 M lbs of relatively high grade), lots of cash and production prospects by 2013.
- Prophecy Resource (PCY.V, C$0.87 +.02) - Normal profit taking going on here after a large run up last year. John Lee is determined to drive this emerging coal producer in Mongolia into an international mining powerhouse. Started production last fall with a favorable off-take agreement. Very aggressive business plan in place to make it a billion dollar company. Following the path that Robert Friedland took with South Gobi. This stock has obvious 10-20 bagger potential.
- Gryphon Gold (GYPH, $.1530 -.0016) - Got plan from management to begin phased production by early 2011 - financing details have yet to be announced. Has >1M oz AU proven, mining permits and a highly prospective land package. 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 50% 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.
4) Sell half of position on a double.
5) In this speculative environment with many junior miners coming to life, put a TIME stop on your junior investment. If your position is DEAD MONEY, consider rotating it to a stock that has more favorable technicals - juniors should have a PERFECT STORM behind their back between now and April 2011 - it's a time to MAKE HAY.
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