Market Observations for This Week: The market is rallying into the key Jan 20-21 turn window which includes a Monday holiday and should make a short-term peak going into weekend. The main theme here to be recognized is that the Gann 30-yr and 60-yr cycles are pointing hard up for several key commodities like soybeans, corn, oil and the PMs and a big "reflation trade" is about to ignite across the commodity board. The monetary actions of the US Fed, the BOJ and the ECB should augment these cycles in the spring. The new Japanese Prime Minster is determined to hyper inflate the Japanese economy and this should be a key factor in the inflationary cycle that is due in early 2013.
01/17/13 (Commentary for Thursday) Stocks are giving us a mini-blow off into the holiday weekend – looking for a short-term top on Friday. After that, the ES will be primed for a pullback – an impulsive decline on the hourly will be bearish and just a corrective pullback will be bullish. A breakout about 1472 in the ES would confirm a 3rd wave on the hourly chart with a price target above 1500. We were wrong about a short-term top being made in the Jan 10-13 turn window for the ES and PMs and with the HUI making a 5-wave rally pattern on the hourly chart today we will be looking to buy on corrective declines after Jan 21. It looks like we will get a rally into the Jan 20-21 turn window that includes the Fibonacci 55-wk step out from the 12/29/11 low and a Bradley turn day on Jan 20 – ideally, this would give us just a short-term high in the ES and the PMs before a pullback in late January. A cluster of Fibonacci step outs pointed to January as an important reversal month for the PM complex – Jan 4 may have been the low. The reflation trade may be kicking in gear as crude oil continues to sub-divide higher on the hourly chart. A lot of sideline money may try to enter the market as the Fiscal Cliff gets "band aided over" for the short term. We favor PM stocks, financial stocks, energy stocks and Japanese export stocks as the reflation trade gets rolling. Holiday sales were reported to be the weakest since 2008, however, with the proliferation of gift cards that are not actually counted against sales until actually spent, this may be a premature statement. Overall though, this does substantiate our view that the US is already in a shallow recession. We feel that the intermediate picture is bullish for a reflation trade that should benefit the PMs, crude oil and grains. Bullish sentiment for the HUI was reported by whispernumber.com to be nearing 52-wk lows for Jan 4 – this is CONTRARIAN BULLISH. The HUI finished an EW 5-wave rally on the hourly Tuesday – a corrective decline into late January will be an ideal place to add to longs.
- Big Picture on Stocks (UPDATED) – A four-year cycle low was due by Jan 2013 and we thought that a shock of fear (VIX~40) was needed to bottom this market. The 11/16 low may stand as the correction low and the VIX spike to 23.3 on Friday may be it. The large spike in new NYSE 52-wk highs on Jan 2 argues that we have started a rally leg that should make new highs despite the chicanery going on in Washington.
- Big Picture on PMs (UPDATED) – Sentiment readings from Hulbert & whispernumber.com are finally looking supportive of gold and silver. The COT numbers are still bearish as they show three times as many small trader longs as shorts from the 12/28 readings. Gold reached within $4 of our $1621 target on 1/4 as the HUI held above its 418 low - this should be at least an important trading low and perhaps the low for the year.
- Stocks – The ES will confirm a 3rd wave by taking out 1472 and should peak over 1500. We're getting a little blow off into the holiday weekend.
- Gold – The 3-wave pullback on Friday, Jan 11 was in hindsight a Wave 2 of a bigger rally pattern – gold could spike above $1695 going into the weekend.
- Silver – Silver took out $31.50 and could spike to $32.00 going into the weekend.
- Bonds – Bonds are bouncing correctively on the hourly chart but still look higher.
- Crude Oil – Oil continues to sub-divide higher on the hourly chart and argues that the reflation trade has kicked into a higher gear. Crude Oil is arguing for more market strength into Jan 20-21 – not weakness.
- Dollar Index – The DX appears to be bouncing in a 4th wave rally on the hourly chart.
TURNING POINT DAY:
We have a turn window on 1/14-1/16 for the PMs and broad market – a low on Wednesday, Jan 16 is consistent with typical price action during expiration 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 was a WASTELAND in 2012 and the metal of PM junior investors has been sorely tested in the past year ….. 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 in December 2012) but we will not add anymore until the 50 day MA crosses decisively up through the 200 day MA on the CDNX chart.
- NEW PICK – Aroway Energy (ARW.V, C$0.415 -.01) – 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$0.180 -.00) 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, $2.50 -.00) - The uranium supply/demand story still has legs despite the Japanese disaster. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer. Adding on weakness.
- Strathmore Mining (STM.TO, C$.30 -.015) – 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, $0.169 -.013) 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, $.074 -.001) - 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 January 2013 and June 2013 - it's a time to MAKE HAY.