Next Big Trade In Search Of Bull Markets

15Oct/144

The Dollar Will Be Sacrificed And Gold Will Soar

This isn't 2008.  Those that are expecting fireworks for the U.S. dollar if this bear market continues are in for a rude awakening.  The setup for the dollar is completely opposite to what happened leading into it's mega run in 2008.  Let me explain.

The dollar was approaching a 3 year bear market heading into late 2008 as the stock market was beginning to crash.  And the bears were out in full force proclaiming the death of the dollar right at the bottom.  Being a dollar bull at that time in 2008 was totally contrarian after a 6 year overall bear market in the dollar, but it was the exactly right position to take.

dollar

This time the dollar has been going up for 3+ years, and is actually late in a cyclical bull market and ready for a top.  Sentiment is dollar bullish now after the dollar has not made a major new low for 6 years since 2008.  Discussion of King Dollar being back has been all over the Internet recently when it made a big surge higher.  In reality it's more likely the dollar is overdue for a major top and could be headed for a new bear market shortly.

Some might say that the big surge higher in the dollar recently is proof that the dollar is ready for a new bull market.  The problem with that narrative though is the fact that markets tend to make false moves before they make big trend changes, as they fool people right at the end of their move.  Two examples of this were what happened with gold and oil in 2007 into 2008 as the stock market transitioned into a bear market.

Gold and oil actually bucked the trend of the stock market and went higher into 2008 as stocks had already topped.  And they didn't just make minor moves higher, they made big moves higher with oil making a crazy parabolic spike higher right before stocks got crushed.  So there is precedent for extreme false moves right before bear markets begin and I think it's quite possible what we just witnessed in the dollar was another example of this.

gold

oil

The story for gold right now is very similar to what happened with the dollar in 2008.  Everyone is bearish at the bottom after a 3+ year cyclical bear market, and nobody expects a major move higher.  Market participants are actually positioned for the exact opposite thing to occur in a big way.  Small speculators in the futures markets were recently the most net short they've been of gold in the last 13 years!  Gold is actually overdue to start a bull market and take everyone by surprise just like the dollar did in 2008.

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Filed under: Articles, Dollar, Gold 4 Comments
7Oct/140

Gold Miners Still Telling A Different Story

A few weeks ago I noted that gold stocks were either crazy or right, because they were continuing to hold up despite gold and silver prices coming under pressure.  Many gold stocks have taken a lot of damage since then and silver broke through support, but the gold and silver miners still are holding up much better than you would expect.

I believe this continues to speak for the gold bear market being closer to an end than most people realize.  Let's take a look at some charts of mining stocks and see.

fnv

Frano-Nevada I think is the cleanest example of this.  I included the price labels to note the high and low prices for Franco on the chart.  Notice that ever since the major gold bottom in the middle of 2013, Franco has traced a pattern of higher highs and higher lows.  This is in the face of continued pessimism in gold and gold stocks and with gold testing its lows a few different times, including recently.  Franco just continues to buck the trend in gold which I believe is the telltale sign of a gold bottom coming.

rgld

Royal Gold has a similar chart to Franco-Nevada.  It made a low in mid-2013 with low in gold, then a higher low at the end of 2014.  Then it has put in higher lows and higher highs in 2014 even with two failed rallies in gold.

gg

Goldcorp paints a picture that I think is very important to look at.  First off Goldcorp traded in a volatile sideways range in 2011 which helped foreshadow the top in gold in 2011.  Then Goldcorp started making lower lows in 2012 as gold remained weak.  But gold only went sideways in 2012, and notice how Goldcorp continued to underperform gold in 2012 as evidenced by the relative strength chart against gold on the bottom.  This was more evidence that the gold bear market was intact in 2012 even as gold tried to break out of its range.  Once gold failed in 2012, Goldcorp crashed along with gold during 2013.  But notice how Goldcorp made a low at the end of 2013, and has held that low in 2014 even as gold has remained weak.  This has caused the relative strength chart against gold to start drifting upward in 2014, which is what you want to see if gold was really making a final bottom here.

So if gold were really headed to new lows to conclude 2014 and into 2015, we would not expect the gold miners to have performed so well this year against gold.  Instead they should have continued to amplify gold's losses on the downside, and should be trading at much lower levels relative to gold than they did in 2013.  This positive divergence against gold for the gold miners is a bullish sign that you won't hear anything of from the mainstream media.

Silver miners tell a similar story to gold miners.  Even with silver making another new low recently, most silver miners have outperformed silver all year and most of them are refusing to make new lows along with silver.  Take a look at some silver miners below.

slw

Silver Wheaton has actually bucked the downtrend in silver since the middle of 2013.  You could even say it has held up against silver going all the way back to 2012.  Notice on the relative strength chart we see a pattern of higher lows and higher highs since mid-2013, meaning that Silver Wheaton is outperforming silver.  This argues for the coming end to the silver bear market.

paas

ssri

Pan American Silver and Silver Standard have similar charts, but the main point is that they both have outperformed silver all year in 2014.  They both also haven't made a new low even though silver has.

There are gold and silver stocks that have made new lows recently but most of the miners have showed major strength against gold and silver during 2014.  This continued strength could be indicating that gold and silver are getting very close to ending their bear markets even as sentiment remains bearish.

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Filed under: Articles, Gold No Comments
3Sep/140

Gold Stock Leaders Keep Leading

There's a serious disconnect going on between the precious metals and some of the leading mining stocks.  Take a look here at GLD, having a hard time taking back the 200 dma.  It's below both the 50 and the 200.

gld

Now take a look at a mining leader, FNV.  FNV has finally just come back to it's 50 dma.  It's been holding this moving average for the most part ALL YEAR.  Impressive strength in FNV considering gold is still drifting in a Stage 1 base.

fnv

Check out RGLD, same story as FNV.  Holding the 50 dma all year long.  It's just now retesting the 50 even though gold has been weak for 2 months.

rgld

Now check out what's going on in NEM right now.  Gold has been correcting from early July until early September.  What has NEM been doing?  Going up.  NEM is holding the 50 and 200 now.  NEM doesn't seem to care that gold is correcting.  This is interesting because NEM had been weak for most of the year but now it's showing relative strength.

nem

This is interesting stuff because either all of these separate stocks are completely wrong and are about to tank with gold, or they are correctly forecasting an end to the gold bear market.  I would bet on the latter, given the fact that they also correctly predicted the start of the gold bear market in 2011.

I think a lot of recent weakness in commodities was due to the surging dollar, but the dollar is due for a break and given the fact that commodities didn't break support on this monster dollar surge I think they are simply retesting their base in anticipation of a new bull market.

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Filed under: Charts, Gold No Comments
20Aug/140

How Bear Markets Mis-Price Assets (And Provide Big Opportunities)

Today one of the stocks I own provided a glaring opportunity of how sentiment and excessive pessimism can mis-price an asset and provide huge opportunities to those that are paying attention.  The stock is Starcore International Mines (SAM.TO) on the Canadian TSX exchange.  Now this is a small cap mining stock with only one property in production, so it carries it's own company specific risk that some people might not want to take on.  But in a gold bull market a stock like this can also do exceptionally well especially when it is priced for failure but turns out to be a success.

Here's the basic rundown of what has been happening with this company.  Leading up into the year 2012, this company had their gold production hedged and didn't own their mine due to a loan and a hedge they took out to acquire the mine.  So these facts put kind of a damper on the stock to begin with.  Why would you want to own a hedged miner when most gold miners are unhedged in this gold bull?  But in 2011 even as gold was topping, the market started recognizing the fact that Starcore was going to pay off its hedge soon and would be an unhedged gold producer with free cash flow.  And it had a low P/E ratio because the stock wasn't being assigned a high valuation by the market.  So what did the market do in response to these facts?  It bid up the shares from under 10 cents to over 40 cents in a matter of months.  And this was all while gold topped in 2011 and started a bear market.  You can see the Stage 2 breakout below in the chart.

sam

In 2012 Starcore outperformed just about every other mining stock out there due to its changing fundamentals.  But the gold bear market eventually got to this stock and in 2013 the gold bear started hammering its shares.  Starcore fell all the way back to the mid-teens and has been oscillating up and down since then as the gold bear market has prevented big money from taking interest in a small cap miner like this.

But the fundamentals just kept improving for Starcore during 2013 and into 2014, as it paid off its debt and went debt free with 100% ownership of its mine.  Then Starcore just kept adding cash to its balance sheet, and put out a press release stating that it intended to be a dividend paying gold miner once it built up enough cash reserves.  This alone made it a very unique stock because there are not that many small cap gold miners that are cash flow focused and shareholder friendly enough to pay dividends.  But Starcore decided to be unique in this aspect.  All of these facts and improving fundamentals is what gave me the resolve to add shares in Starcore during this gold bear with the goal that once the bear market was lifted the improving fundamentals would help the stock take off.

The gold bear of 2011-2014 basically negated the improving fundamentals of Starcore that were occurring under the surface.  This isn't just unique to this stock but other gold miners as well as companies in other industries that have endured bear markets.  Especially cyclical markets that don't go away, downturns always create buying opportunities for the next upturn.  The market has basically ignored Starcore's improving fundamentals and even with today's dividend announcement won't give the stock full credit for its improved fundamentals until gold transitions back into a bull market.

But until then and especially since gold is late in its bear market it's a great time to acquire undervalued assets that are mis-priced due to excessively bearish sentiment.  This is when those that are paying attention and know that bull and bear markets don't last forever can make big long term trades.

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

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Filed under: Articles, Gold No Comments
6Aug/140

Gold Quietly Grinding Higher

On Tuesday it looked like the gold bears were going to give gold another knockout punch, but then something funny happened.  They just kind of went away.  It feels like the bears are just done here.  They've controlled this market for 3 years now, but haven't had anything to show for it for a full year as gold has gone sideways since mid-2013.

Now it looks like the gap in GLD in June will hold, as GLD gapped higher today out of a bullish descending triangle, on an increase in volume.  GDX is also acting very bullish, consolidating above the 50 and 200 day moving averages.  Today it bounced off both of them and gapped higher on volume.  Quiet bullish action in both markets that not many people are talking about.

gldgdx

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Filed under: Charts, Gold No Comments
5Aug/140

Gold Still In Stage 1

Gold has been in a Stage 1 base all year, and really has gone sideways since mid-2013.  The stronger gold stocks have been anticipating a gold breakout, but it hasn't quite come yet.  Gold is forming a tight symmetric triangle, but there's been no massive increase in volume which accompanies a Stage 2 breakout.  Also gold needs to outperform the S&P 500 on a Stage 2 breakout and the volatility should start to expand in the as shown in the ATR.  Overall it's just a waiting game for gold here.

gold

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Filed under: Charts, Gold No Comments
31Jul/140

Painful But Rewarding

What is hard about investing?  It's not the simple mechanics of investing.  Nowadays if you have the money, it's easy to open an online trading account and start trading.  You don't even have to talk to anyone usually, just mail in a check to the broker and off you go.  So the HOW or mechanics of investing is not hard.

Is finding what to trade hard?  This is an interesting question.  I would submit that finding WHAT to trade is not the hard part about investing either.  Studies have shown that selecting stocks at random, aka monkeys throwing darts at a dartboard, have outperformed market averages in a wide variety of years.  But this is only because stocks as an asset class tend to move in the same direction, creating bull and bear market trends over time.  So picking any random subset of this asset class at any point in time will not improve your chances of success, in most cases, if you're wrong on the direction of the general trend.

So unless you pick a specific company that has a bad business model that is going out of business, picking WHAT is not as important as picking WHEN.  I submit that WHEN you buy an asset is the most important question to ask.  And that makes sense because that is where the greed and fear reside in investing.  That is where the emotion is put in play, that makes it "easy" to make bad decisions, or "tough" to make good decisions.

It's easy to buy when things feel good, when people are excited about stocks or whatever asset class is hot at the moment.  Join the herd!  Herds feel good to join for most people, they play right into your natural bias to want to be part of a group.

And it's tough to buy when you feel bad, when an asset class is a mess and no one likes it.  You feel like a lone wolf, and your behavior might seem odd to your friends.  You don't have a group to make you feel good, and you'll usually have people calling you a fool for what you are doing.  Or they make fun of you in hindsight, which is actually pretty ironic because often this is the EXACT WRONG POINT at which they should be making fun of you.

Case in point is an interview I posted where a CNBC anchor attacks a prominent gold analyst for suggesting rebalancing into gold at the end of 2013.  Stocks were up 30% in 2013, gold was down 30%, so it was a simple case of rebalance and buy low.  But the CNBC commentators couldn't resist bashing someone recommending gold due to it's poor performance especially when stocks were up.  Ironically though this is proving to be the exact wrong time they should have been bashing gold, as December 2013 is looking more and more like the bottom in the gold market.

My own experience with 2013 had some painful and fearful moments I won't forget, or at least I hope I won't forget for a long time.  I like to average into positions, never buy anything or sell anything all at once.  And 2013 afforded me some awesome opportunities to add to some positions in the gold sector at great prices.  I felt stupid and alone for what I was buying in a lot of cases.  But deep down I knew those feelings would end up betraying me later on when the bear market was over, and looking back I would wish that I had bought low.  So I did that and took the pain for the time being.

Now that we're well into 2014, some of my buys over the past year in gold miners are up over 100%.  This blows away the performance of most of the stocks you see on TV, but no one is talking about this.  If you look at the universe of thousands of ETFs in the market, in the top 20 for 2014 are at least 6 ETFs that focus on gold or silver stocks.  No one is talking about this outperformance either.   Instead they are talking about stocks like Twitter, which is down 30% this year.  I can find plenty of gold stocks in 2014 that are blowing away the returns of Facebook, Apple, and other prominent stocks that are all over the media on a daily basis.

The funny thing is the move in gold hasn't even barely started yet, but we're already seeing huge returns in the gold stocks.  That's typical of a new bull market, huge returns early when no one is looking or they are still scared or scarred from the previous bear.  That's where you apply the principle of buying right (when things are painful) and sitting tight (when everyone else is jumping in) to get yourself positioned to reap the rewards of a bull market trend.

gld

If you look at gold right now it's still sitting in a Stage 1 base, but a decision point is approaching.  Gold is either going to make a higher high or a lower low soon and tip it's hand to the bulls or bears.  The returns and strength in the miners would lead you to believe the hand should be tipped to the bulls.

Connect with me on Twitter: @nextbigtrade

The original article and much more can be found at: http://www.nextbigtrade.com

The views and opinions expressed are for informational purposes only, and should not be considered as investment advice. Please see the disclaimer.

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Filed under: Articles, Gold No Comments