Market Observations for the Coming Week: WARNING: we are looking for the August-October period to be highly volatile for several markets. 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.
08/05/15 (Commentary for Wednesday)
The SPX reversed up in today’s turn window but much of the day’s rally was given back impulsively which makes us defensive going into Thursday. A test of the highs is still a possibility despite large cap stocks like AAPL and BIOGEN rolling over into their own bear markets. Weakness in China overnight will likely drive early trading down early Thursday. Oil reversed down today which makes the stock rally a little suspect. Gold is testing $1080 again – a flash crash to $1030 looks possible as we go into Friday’s NFP number – a close below $1080 will be a bearish trigger. Bonds declined today on fears of a Fed rate hike in September. The global bond markets have been correcting in unison since April and we feel that TLT will be much lower by October and that could create great stress in the world financial system. We still contend that the stock market needs a 10% correction to recharge the batteries for a run higher into 2016 and we should get that in the Aug – Oct period. With the global blow off in bond prices in March, the low in crude oil in January and the parabolic blow off in the USD in March, we feel that the subsequent sell off in bonds into yearend could be more chaotic than most analysts realize. One of the key fundamental triggers for this sell off is the “lack of liquidity” that has been reported for high-yield bond sellers which we see as a “canary in the coal mine” – this lack of liquidity breeds volatility which could accelerate when the Fed raises rates sometime later in 2015 against the wishes of the IMF and other world central bankers. The Euro looks very bearish – this weakens the short-term bullish case for gold. Oil declined today and continues to lead the CRB down to test the 2001 lows.
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 could make a 4-yr cycle low and 7-year cycle low.
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Big Picture on PMs (UPDATED) – We’re looking for gold to make a major low by the third week of August. If we can rally past $1106, a test of $1130 could be the next stop however, a close below $1080 would imply a move down to $1030.
- Stocks – The SPX reversed up on today’s turn window – taking out Wednesday’s high would be bullish for a retest of the high.
- Gold – Gold could break below $1080 as we approach the Friday’s NFP job’s report. A close below $1080 would get take us to $1030 support very quickly.
- Silver – Silver is holding above late 2014 lows so far which is potentially bullish.
- Bonds – Bonds gave us a 5-wave down impulse pattern on the hourly to confirm a reversal down – we added puts on TLT today.
- Crude Oil – Oil declined today as the SPX rallied hard – looking for winter lows to e taken out.
- Dollar Index – The Euro looks bearish as the USD tries to test 99.
TURNING POINT DAY
Our turn windows for this week are 8/4-8/5.
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$0.066 +0.007) – 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$0.078 +.008)- 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, $1.25 -.01) – 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$5.14 -.18) – 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, $0.0403 -.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, $.0250 +.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.
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