Market Observations for This Week: The ES and PMs gave us a little blow off going into the Feb 1 turn window – if the PMs hold above the Jan 4 lows into the Feb 7 – Feb 8 turn window, we will be buying corrective pullbacks with both hands – we favor buying financials and gold stocks on dips. 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 starting 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.
02/05/13 (Commentary for Tuesday) The ES pushed higher as the Nasdaq posted a Positive Volume Reversal Day on the back of an AAPL rally. The ES appears to be doing a sideways consolidation with internal rotation among various stock sectors. We are looking for modest pullbacks into the Feb 7- Feb 8 turn window for the ES and PMs – as long as gold holds above the Jan 4 lows, we will be aggressive buyers of the PMs and PM stocks going into next weekend. Excessive put buying is supporting this market – short bets should not be entertained unless 1490 is taken out. The PMs appear to be tracing out a triangle on the hourly. The HUI appears to be tracing out a sideways 4th wave of a final leg down that would ideally eclipse the July lows at 382, we may be making a significant low in the PM sector this week. 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 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 could be tested going into the Feb 7 – Feb 8 turn window and the following reversal up could be the start of a major rally.
- Stocks – The ES rallied back from Monday's decline – we appear to be working on a sideways 4th wave correction that is allowing internal rotation between market sectors – taking out 1490 will argue for a more serious decline. The market internals and the volume patterns argue to buy 3-wave corrections going into Feb 7 – Feb 8.
- Gold – Gold appears to be tracing out a triangle on the hourly as the COTs become more bullish. If the HUI takes out the July lows at 382 in the Feb 7 – Feb 8 turn window, this will be a bullish trigger for us.
- Silver – Silver also appears to be tracing out a triangle on the hourly chart.
- Bonds – Bonds are correcting a 5-wave decline on the hourly chart – a C-wave bounce on the hourly chart is due tomorrow before the next leg down.
- Crude Oil – Oil bounced off the hourly Volume Point of Control – we expect more rally.
- Dollar Index – The DX is finally getting a bounce – looks to target the hourly Volume Point of Control at 79.87.
TURNING POINT DAY:
We probably made a short-term peak going into the Feb 1 turn window – looking to buy 3-wave corrections in the ES and PM sector going into the Feb 7 – Feb 8 turn window.
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$0.51 +.02) – 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$0.18 +.015) 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, $2.32 +.01) - The uranium supply/demand story still has legs despite the Japanese disaster. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer. Adding on weakness.
- Strathmore Mining (STM.TO, C$.27 -.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, $0.130 -.020) 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, $.0402 -.0078) - 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.