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)
7/28/11 (Commentary for Thursday) The attempted bounce in the SPX was weak with tepid breadth and leaves open the possibility of another leg down. A one-sided sentiment reading on the Wall Street sentiment survey on 7/22 (60% bullish/ 12% bearish) revealed the market to be in a vulnerable sentiment position going into this week. At this point we are inclined to short any "debt ceiling agreement" rally and believe that a decline has started which should carry into the first half of September. The ES may be in a 3rd wave of C down from the 7/8 peak. Gold spiked up to hit our $1630 short-term price target and reversed down to confirm Weekly Reversal Timing. The 36-wk cycle low should ideally bottom around 8/8 for the PM sector. A strong SPX market correction is likely into August and September – we wouldn't chase tech stocks here because of the negative seasonal from late July through September. We think that the likelihood of a US debt downgrade from AAA to AA puts the bond market in a vulnerable position. The Dollar Index rallied hard and appears like it wants to go higher – a run to .90 is likely going into September. A staunch commodity decline into the Fall may give the Fed the political cover for a QE3.
Big Picture on Stocks (Updated) – The SPX made a B-Wave test of the 5/2 high that may have ended on 7/8/11. We only saw a 3-wave rally from the 6/16 low into the 7/8 high. Expecting an August/September correction in stocks after the 60-yr cycle peak in commodities topped out in May – stocks have been closely correlated with commodities since the blow off peak in commodities in July 2008 – the slowdown in China may have more teeth than analysts realize. The ES=1350 level was tested and rejected in the turning point window last week – looking for a decline to retest ES=1250. The market is oversold but a mini-crash could result if the debt ceiling fails to get raised as advertised.
Big Picture on PMs (Updated) – Gold's summer break out to new highs in USD terms has very bullish ramifications. New buyers of gold and silver should wait until August cycle lows before making additional purchases. Gold stocks may have made a major low on 6/16 – 36-wk cycle lows may give us a buying opportunity into mid-August.
- Stocks – The ES declined in 5-waves into this morning but only bounced correctively. The market is oversold here but there is complacency in the air. The ES may be declining in a Wave 3 of C on the daily chart which could run into mid-September and be sharp and scary. We plan to fade a "debt settlement rally".
- Gold – Gold declined in an EW zig-zag correction on the 5-min and bounced - a pull back into the 36-wk cycle low is ideally due around 8/8 or so. A bounce into tomorrow should be shorted – tomorrow is a Merriman turn date.
- Silver – Silver's bounce was weaker than gold's today – we plan to short a rally into tomorrow. Looking for a cycle low around 8/8
- Bonds – The bonds look vulnerable to us here. A USA Treasury debt downgrade is a possibility Friday if a lackluster deficit bill is passed – a debt downgrade could cost the US gov't an additional $70-80B a year in higher interest rate costs.
- Crude oil – Crude oil may be sub-dividing down in a substantial correction.
- Dollar index – The DX rallied hard and may have started the expected bounce to .90 – a confirmed EW 5-wave rally on the 5 min chart may be the start of a large bounce.
TURNING POINT DAY:
The 7/20-7/22 turning point window may top the SPX and crude oil – watch for potential reversals down on Monday.
Depression Beater Portfolio: (This portfolio is just a sample of my own portfolio - no recommendation to others is implied or intended)
- Evolving Gold (EVG.TO, C$0.63 -.00) - 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 – this company is at the verge of a major rerating in price – recent drilling results from the Carlin trend, the JV with AEM at Rattlesnake Hills, and the refocusing of Quinton on the exploration effort are all very positive signs.
- Uranium Energy (UEC, $3.52 +.10) – The uranium supply/demand story still has legs despite the Japanese disaster. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer. Adding on weakness.
- Strathmore Mining (STM.TO, C$.57 -.02) – Very undervalued uranium stock with huge reserves (+100 M lbs of relatively high grade), lots of cash and production prospects by 2013.
- Prophecy Coal (PRPCF, $0.7220 -.0360) The spinoff of the Prophecy Platinum Company (PNIKD) has galvanized this stock – look to buy at key chart support as the broad market corrects into September. 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, $.2050 -.0084) - 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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