Market Observations for the Coming Week: WARNING: we are looking for the August-October period to be highly volatile for several markets (See our 8/6/15 talk on the Shemittah cycle - "Can the Stock Market Crash Going Into October - Weighing the Probabilities" https://www.youtube.com/watch?v=5tgPXoA9x00). Several important stock market cycles are due to bottom: the Shemittah cycle (7-yr), the 4-yr cycle, and the 50-wk cycle. We should also see extreme volatility in gold, bonds and commodities. Holding a large position in cash as we enter this period is recommended. Our turn window on 9/21-9/22 gave us a pre-market reversal higher on Monday and then a reversal down Tuesday - the Tuesday after a Triple Witching expiration is a key turn day in our work. Regardless of near-term bounces, we are looking for another leg down to test SPX 1800 in October.
09/24/15 (Commentary for Thursday) The SPX made a top on 9/17 and appears to be winding down in a very bearish EW 1-2, i-ii downside pattern on the hourly chart. We rallied back late Thursday as the SPX followed crude oil higher but any bounce in the SPX into Friday should be sold as sentiment on the stock market is still too complacent considering the amount of technical damage that we've seen to the SPX. The Full Moon/lunar eclipse on Sunday/Monday could be a trigger to a sharp leg down on Monday. The hit to the biotech sector on Monday is causing a "take profits" attitude in this sector that has been one of the few with earnings visibility. Hillary Clinton's tweet on "price gouging" for drugs sent shock waves through the IBB index on Monday and the selling continued into Wednesday. Bonds sold off after an early rally on Thursday but the pattern looks higher. We expect bonds to lead the next leg down in stocks into October. The post-Labor Day SPX ended on 9/17 and any bounce into 9/24 should be sold for a leg down into October. Oil rallied back from a weak opening on Thursday and we remain adamant that $37.75 was the major low - calls for $20 oil do not look likely to us. Our bias is that a major low was made at $37.75 and this marked a 3-yr cycle low in both oil and the CRB - however, we could see more testing of lows into October. The late August price action confirmed a four-year cycle top in the SPX and suggests a 20% decline into October and we currently favor a corrective pattern similar to 1998 where we had a 7/20 peak and a scary decline into late August before a big reversal up into September and then a lower low into October. Gold ran up hard on Thursday - a rally into the 9/28 Full Moon is underway. We still contend that the stock market could manage a 20% correction as we bottom the 7-yr cycle in the Aug - Oct period and the post-Labor Day "head fake rally" into 9/17 may have set the hook for the next leg down into October.
Big Picture on Stocks (UPDATED) - With China leading global markets down, commodities and commodity stocks are being pressured. We are expecting a big correction from August to October which should make a 4-yr cycle low and 7-year cycle low. The post-Labor Day rally ended after the FOMC decision on 9/17 - we're biased to sell bounces in the SPX into 9/25 for a big leg down after the 9/28 Full Moon/lunar eclipse.
- Big Picture on PMs (UPDATED) – We believe that gold made an intermediate low at $1072 and followed that with an EW 5-wave rally on the hourly chart to $1169. Gold confirmed a cycle low at $1097.7 on 9/11 after the sharp pivot reversal above the major Daniel Code support line at 101.7 for the HUI - we started a rally to $1200-$1230 after the Fed rate hike decision.
- Stocks - The SPX declined below 1900 before rallying late - we're looking to short any bounce into Friday and are expecting a sharp decline after the 9/28 Full Moon/lunar eclipse.
- Gold - Gold confirmed a major low at $1997.7 on 9/11 - we are rallying hard into the 9/28 Full Moon/lunar eclipse.
- Silver – Silver is reversed up hard with gold on Thursday.
- Bonds - Bonds declined late but its rally pattern does not look complete - we're looking to sell bounces for a leg down into October.
- Crude Oil – Oil reversed up from a weak opening - we still want to accumulate select oil MLPs on retests of the $37.75 lows into October.
- Dollar Index – The Japanese Yen may have made a major low. We're looking to buy the Yen on dips. The Fed decision not to raise rates on 9/17 should give us more downside on the USD.
TURNING POINT DAY
The 9/21-922 looks like a key turn window for early in the 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: Update for 7/05/15: The CDNX remains mired in a deep, historic bear market since the April 2011 which led the turn down in the gold and silver market by a few months. To us, junior mining stocks are just trading affairs unless the 50-day MA crosses up through the 200-day MA. In our best guess, we feel that the CDNX and the gold mining juniors could bottom by October in advance of our target of April 2016 for a final low in gold and silver - typically the gold mining stocks bottom 6-9 months before final lows in gold and silver. We have read that up to 45% of junior gold/silver stocks only have enough cash on hand to continue operations for the next quarter. Many recent equity-based financing are small and done just to keep the lights on. Until the CDNX turns up , it is best just to focus on well-financed juniors with great assets and positive cash flow. Now is the time to follow these stories since we are in the late stages of this brutal bear market.
- Great Lakes Mining (GLKIF, C$0.0600 +.0025) – NEW Recommendation 7/5/15 - This is a unique situation in the high-end graphite market. This company is scheduled to open a factory to upgrade graphite for specialty applications by October. This vertical integration business model adds a new dimension to this company and is worth following.
- Aroway Energy (ARW.V, C$0.010 -0.000) – 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 (EVGD.TO, C$0.0360 +.0000)- UPDATE: This stock has two world-class finds in Wyoming (Rattlesnake) and a potentially huge find on the Carlin Trend in NV. The problem is that the company needs a financing and could be forced to sell a world-class asset for pennies on the dollar.
- Uranium Energy (UEC, $1.09 +.02) - UPDATE: Uranium prices are recovering and the fundamentals are getting a perfect storm. Favoring the near-term producers here like UEC - the fundamentals are much more dramatic that the typical emerging gold producer.
- Energy Fuels (EFR.TO, C$4.21 +.07) – Finished acquisition of STM.TO in early September - building up a position as a strong US producer of uranium in a tight market.
- Prophecy Coal (PRPCF, $0.0395 +.0000) – UPDATE: This stock needs to get its Mongolian coal mine into a positive cash-flow situation to support its power plant project and other endeavors without diluting the common shareholder to zero.
- Gryphon Gold (GYPHQ, $.0180 +.0000) - UPDATE: De-listed stock. Good asset but 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 30% stops based on purchase price. Buy a basket to diversify risk)
RULES FOR JUNIOR MINING INVESTING:
1) Keep to 5-10% 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.