Market Observations for This Week: The PMs declined into the Jan 25-28 turn window which included a Full Moon – we topped a B-Wave on Thursday and it appears that we will bottom a C-wave on Friday – if we hold above the Jan 4 lows that should put the PM sector in a bullish position. 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.
01/31/13 (Commentary for Thursday) The ES may be tracing out an ending diagonal pattern and this could target 1520 – taking out 1490 would confirm a short-term top. Excessive put buying is supporting this market – short bets should not be entertained unless 1490 is taken out. The ES sold off after the Fed announcement, but bears have to be aware to the possibility of a push to ES=1520 in a diagonal move on the hourly chart – today's tape supports the ending diagonal pattern outlook. The PMs peaked a B-Wave on Wednesday and look to bottom a C-Wave on Friday – since the HUI appears to be finishing a final 5th wave down, we may be making a significant low in the PM sector on Feb 1. A cluster of Fibonacci step outs pointed to January as an important reversal month for the PM complex – and recent tape action argues that the Jan 4 lows will hold. The reflation trade may be kicking in gear as crude oil surged to a four month high 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.
- Big Picture on Stocks (UPDATED) – 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. Looking for new all time highs in the SPX and DJIA going into the spring.
- Big Picture on PMs (UPDATED) – Sentiment readings from Hulbert & whispernumber.com are finally looking supportive of gold and silver. The breaking of the 418 support level by the HUI argues that the Jan 4 lows in gold and silver will be tested going into Feb 1 and the following reversal up could be the start of a major rally.
- Stocks – We continue to look for a 1520 price target – unless 1490 gets taken out first.
- Gold – Looking for gold and the HUI to bottom on Friday – we need to hold above the Jan 4 lows to maintain a short-term bullish posture.
- Silver – Silver topped a B-Wave on Wednesday and declined in a C-wave today with a potential low on Friday to come.
- Bonds – Bonds look weak – may have started next leg down - sell 3-wave bounces.
- Crude Oil – Oil broke to four-month highs today on the Israeli attacks on Syria Thursday – a pullback into the Feb 7-8 turn window should be bought.
- Dollar Index – The DX declined through the Volume Point of Control (79.91) on the hourly chart – a sign of weakness. Still looking for a bounce into early February.
TURNING POINT DAY:
The next turn window is 1/31-2/1 – looking for some downside volatility in this overbought market.
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$0.43 +.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$0.17 -.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, $2.25 +.09) - The uranium supply/demand story still has legs despite the Japanese disaster. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer. Adding on weakness.
- Strathmore Mining (STM.TO, C$.245 +.01) – 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, $0.15 -.0122) 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, $.065 -.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.