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)
10/31/11 (Commentary for Monday) The ES declined hard today as the DX after caught a bid in a massive currency intervention designed to weaken the Euro. The SPX and NYSE both traced out Negative Volume Reversal Days. Looking for the ES to decline into the 11/2 FOMC meeting before a bounce. Late October new moons often correlate with market declines after their passing – the set up looks right for a significant retracement of the rally from 10/4, but we need to see an impulsive decline first on the 5 min chart. For the intermediate term, the ES looks bullish – values of > +200 on the McClellan Oscillator argue for higher prices by December/January. A large bullish majority in the Wall Street Sentiment Survey (10/21) is a negative from a contrary opinion point of view – bearish majorities have underscored the rally phases in this bear market. The CDNX (a proxy for mining juniors) appears to need another leg down to finish a large corrective pattern – a market washout into November may provide another trading opportunity to add to juniors but tax-loss selling will have to be dealt with. The COT numbers on gold and silver are bullish here – the HUI and GDXJ may be testing highs by early December based on compelling historical patterns with 2006 – gold may be breaking out to the upside here – just a 3-wave pullback in gold into the 10/28-10/31 turn window will be very bullish. A meltdown in copper and other base metals suggests that this market decline could have some legs beyond an intermediate-term rally in October – note that the ECRI group just issued a RECESSION CALL - the second phase of the bear market may not end until January/February. Economic data from China including year-over-year electricity consumption, MET coal imports and trade data with Taiwan all suggest a harder landing in China than anticipated. The breakdown in copper below August lows is a bearish signal for the entire commodities board. Our fundamental view is that China is experiencing a "hard landing" which combined with the European debt crisis should give us another leg down in the global bear market. The Dollar Index made lower lows into the 10/28-10/31 turn window and we are getting an impulsive rally to confirm a short-term low. A rally to .90 resistance on the DX weekly chart by spring is likely.
Big Picture on Stocks (Updated) – We bottomed the first phase of a global bear market on 10/4 and we are in a large corrective rally that should run late into the year. Looking for a pull back into the 11/2 FOMC meeting before the next tradable rally.
Big Picture on PMs (Updated) – This year is comparing well with 2006 – a parabolic blow off in the spring and then a stiff >20% decline into October. We're looking for an explosive rally to start in the PM sector by mid November – this should run into December/January. Testing highs in the HUI by early December is likely.
- Stocks – The SPX and NYSE gave us Negative Volume Reversal days – looking for another leg down into 11/2.
- Gold – Gold declined correctively – it appears to need another leg down into the 11/2 FOMC meeting. Based on historical patterns, this market feels like 2006 which also had a parabolic blow off in the spring and a stiff decline into October.
- Sllver – Silver gave us an EW 5-wave decline on the 5 min chart – looking for at least another leg down into the 11/02 FOMC meeting.
- Bonds – The bonds rallied in an EW 5-wave advance – looking for a small correction before another leg higher.
- Crude oil – Crude gave us a high-range consolidation today.
- Dollar index – The DX rallied in an EW 5-wave pattern on the hourly chart – a short-term low was made at .7486. The Euro gave us a 5-wave decline and appears to want to sub-divide down more. However, our target of .90 appears to be farther off in time – perhaps in early 2012 as the next stage of the European debt crisis rears its head.
TURNING POINT DAY:
The ES rallied into the 10/28-10/31 turn window but bearish divergences are appearing in the QQQ that should drive a short-term pull back. Looking for the QQQ to fill the gap around 55 by the FOMC meeting on Wednesday.
Depression Beater Portfolio: (This portfolio this week is just a sample of my own portfolio - no recommendation to others is implied or intended) DELAY NEW PURCHASES UNTIL LATE-OCTOBER – TIME TARGET FOR MARKET CORRECTION LOWS
- Evolving Gold (EVG.TO, C$0.45 -.06) – The stock price fell back to the level of the recent private placement – drill results coming out soon could confirm a world-class find in the Carlin trend – this stock is a buy here. 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.
- Uranium Energy (UEC, $3.36 -.08) – The uranium supply/demand story still has legs despite the Japanese disaster. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer. Adding on weakness.
- Strathmore Mining (STM.TO, C$.44 -.08) – 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, $0.5571 +.0005) The spinoff of the Prophecy Platinum Company (PNIKF) has galvanized this stock – look to buy at key chart support as the broad market corrects into September/October. 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, $.3350 +.007) - 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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