Next Big Trade In Search Of Bull Markets

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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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
26Jun/140

Some Miners Say We’re In A Gold Bull Market

So far in the past 6 months gold has made two important lows, a December 2013 low and a June 2014 low.  The June 2014 low was a fake breakdown turned fast move higher.  This is very important, since every rally in gold has failed for the past couple of years during this bear market.  Now we finally have a breakdown in gold that failed, a bullish omen.  But a hidden piece of information that is just as bullish as this failed breakdown is how certain mining stocks are behaving.

Mining stocks come in all different shapes and sizes but one factor that binds them together is the price of gold.  Mining is a tough business, and even the best mining companies in the world can't function well with a low gold price relative to their cost of production.  So when the gold price is in a downtrend all mining stocks tend to get punished and sometimes severely punished.  But one thing to remember is markets are always forward looking.  So we should expect that if gold were to finally stop its downtrend, the market would start to reward the "better" mining stocks with higher prices.

This is actually exactly what we are seeing in certain mining stocks right now.  We now know that gold made a major bottom in December 2013, because we can look at it in the rear view mirror on a chart.  So once gold made that low, pressure started lifting on the stronger mining stocks.  But gold made a secondary low in June 2014 that exerted additional pressure on the mining stocks.  This actually pushed many weaker mining stocks to even a further new low.  But the stronger stocks rejected this secondary bottom in gold, and either traded sideways or continued higher.

Let's take a look at some examples.  The first example is Stillwater Mining, a platinum and palladium producer.  Stillwater is more tied to platinum and palladium than gold or silver, but since they are all precious metals which are very strongly correlated it's a valid example.  Once precious metals made that important December 2013 bottom, the pressure on SWC drastically reduced and it immediately launched into a new Stage 2 uptrend.  This is very bullish action.  It's even more bullish the way Stillwater rejected the pullback in precious metals from March to June 2014.  Stillwater remained in a strong Stage 2 advance during this pullback and took barely any technical damage.

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17Jun/140

Gold: Failed Breakdown To Fast Move Higher?

Gold has failed to breakdown significantly from the tight coil pattern it created over a 2-month period.  Failed breakdowns often mark key reversal points in markets, especially after moves that take a while to play out.  In a downtrend, the duration of the move produces the angst and disgust that causes most of the selling.  Then the final break of support creates the final flush out of the weak holders who didn't sell out earlier in the move.

When there's not enough selling pressure to continue the breakdown, the market often reverses higher in a fast and powerful manner.  The selling pressure isn't there anymore and new buyers push the market rapidly higher.  The market basically gets caught looking in the rear view mirror, expecting more of the same thing to happen forever.  Meanwhile, quickly and with force things change when many aren't paying attention and a new trend develops.

After the coil in gold broke down in late May I noticed that sentiment on gold turned very bearish as if everyone was throwing in the towel.  I even heard a podcast that I've never witnessed bearish on gold, say it wasn't a good time to buy gold.  But as of yet, the breakdown out of this coil has not produced significant follow through selling.  Check out the chart of gold below to see exactly how this has unfolded.

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