Market Observations for Coming Week: The ES went sideways through the key 11/27-12/4 turn window and the DJIA even made a new rally high on Friday. However, the complacency of the market argues that the 4-yr cycle lows may not be seen until Jan 2013 after the US goes over the Fiscal Cliff. We feel that a VIX~40 needs to be seen before the 4-yr cycle low is in place.
12/17/12 (Commentary for Monday) Optimism about a Fiscal-Cliff resolution propelled the markets higher in a Positive Volume Reversal Day for the SPX into today's reversal day. The IEE call/put ratio hit 208, a 52-wk high, as euphoric call buying continued. Our thinking is that today will be the high for the week and we will be down into the 12/20-12/21 turn window, however, if the ES takes out the 12/12 high, that will turn us bullish. The last rally in gold was largely "retail buying" that should be reversed hard to the $1630 level before a rally to new highs begins by early January – bullish sentiment in the PMs needs to be crushed before a new bull market leg can start. We got another overbought TRIN5 value of 4.19 today which argues for more selling to come. The dramatic drop in the ISM New Orders Index on 12/3, the smaller crowds at Disneyworld during Thanksgiving weekend, and drop in Consumer Sentiment argue that the USA is shifting into a recession. The market is at a key juncture this week. Three consecutive euphoric readings in the ISEE call/put ratio (154,148, 134) and four consecutive small changes in the McClellan Oscillator argue that we COMPLETED a BROADENING TOP formation here on the ES. The ES has held up well despite the powerful reversal window seen last week and the broadening top formation seen in many world indices like the DAX and CAC40. The DX took out 79.54 in an apparent B-Wave down on the hourly – looking for a C-Wave rally to test the 81 area. The ES appears to be in an intermediate leg down into the 4-yr cycle low that ideally should bottom in Jan 2013 – looking to sell 3-wave rallies here after Wednesday's post-FOMC reversal.
Big Picture on Stocks (UPDATED) – A four-year cycle low is due by Jan 2013 and we feel that a shock of fear (VIX~40) is needed to bottom this market. We view it likely that the US will go over the Fiscal Cliff and a target low of 1260 (the previous 4th wave low) seen in June is a reasonable target.
Big Picture on PMs (UPDATED) – High bullish sentiment numbers for the HUI and gold from whispernumber.com are negative for gold. The COT numbers are also bearish as they show by January times as many small trader longs as shorts from the 12/4 readings. Looking for a possible retest of $1530 by early Jan 2013.
- Stocks – The ES rallied into today's turn window on good volume – we're thinking today's rally was a wave 2 of C down but taking out the 12/12 high turn us bullish. The ISEE call/put ratio made a 52-wk high of 208 today – this and the TRIN5 reading of 4.19 is a sell signal.
- Gold – Gold may have finished an EW a-b-c bounce in today's turn window.
- Silver – Silver may have finished a corrective bounce today.
- Bonds – Bonds getting hit from money flows to stocks. Short 3-wave rallies.
- Crude Oil – Oil bouncing hard into today's turn window.
- Dollar Index – The DX is bouncing weakly here. Taking out the 11/16 highs would negate the bearish H&S pattern setting up on the daily that argues for a new inflationary cycle to start by January.
TURNING POINT DAY:
The 12/13 New Moon timing window should top the ES and PMs this week.
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: The junior PM sector has been a WASTELAND and the metal of PM junior investors has been sorely tested in the past few weeks ….. BUT …. as Deep Contrarian Investors we will continue to hold our PM juniors (the Hulbert sentiment readings from PM newsletter writers are giving a Major Contrarian Buy Signal) but we will not add anymore until the 50 day MA crosses decisively up through the 200 day MA on the CDNX chart – this may coincide with a "formal QE3 announcement" from the Fed in August.
- NEW PICK – Aroway Energy (ARW.V, C$0.425 +.00) – 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$0.17 -.00) SHOULD BE CONSIDERED FOR NEW BUYING AFTER AUGUST LOWS. 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, $2.48 +.15) - The uranium supply/demand story still has legs despite the Japanese disaster. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer. Adding on weakness.
- Strathmore Mining (STM.TO, C$.21 +.00) – 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, $0.1160 -.0084) 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 wit4 South Gobi. This stock has obvious 10-20 bagger potential.
- Gryphon Gold (GYPH, $.063 +.0005) - 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.