EGSNEWS Excerpts - August 6, 2004
EGSNEWS Excerpts - August 6, 2004
The Gold chart indicates that beginning in early May, a new ascending channel has been put into place with a series of new higher lows and highs. Same for the U.S. Dollar Index, only in the opposite direction. Gold's at three-month highs and the Dollar is at three-month lows. I love to see this kind of poetic symmetry in the charts. Look for pullbacks once it reaches the top of this channel and try to time your buys when it reaches the bottom of the channel for the best pricing on the stocks.
Gold stair steps out of May lows: Next big test - Resistance at $420 - $430
The Silver chart is giving off an "all-systems go!" buy signal after a three-month bear market. The recent breakout moved the price decidedly over the top of the channel around $6.20. All things being equal, this former resistance should now become support for the next move to higher highs. Silver is technically now a buy on weakness.
Where to from here?
Short-term, Gold continues to trade off the US Dollar Index. As we go to print the Index is a bit oversold, so we might expect to see some short term weakness in gold as prices revert to the mean for a bit. The "commercial" futures traders are also bearish right now, another reason for prices to dip.
After that I would expect to see more of the same until the price reaches the ultimate resistance level, the multi-year highs at $430 or so. Barring a rapidly plummeting US Dollar Index, I would expect it to take few attempts to get past significant resistance here.
It's possible that the price could start a short-term downward sloping price channel, giving back 50% of the gains made from the low $372 to $430 (or around $30). Maybe it will trace out the all-too familiar ascending triangle, until it finally creates a low from which it can break "decisively" past resistance. And then that resistance will become support for the next big seasonal run. "Off to the races" as they say.
Don't expect to see too much action in the stocks until this occurs, I'm guessing, by the fourth quarter of this year. Worse case scenario, prices "test" the early-May lows at $372.
Why are the stocks so sluggish?
In spite of the very constructive technical action with the underlying commodities, individual investors and speculators I speak to are feeling glum - expressing concern over the sluggish performance of the individual stocks which have been decimated since February. The HUI appears stuck in a trading range well below its 200-dma, even as gold makes a bullish series of new short-term cyclical highs and has broken above its 200-dma. So what gives?
HUI Index still consolidating well below its 200-dma even as gold prices makes new higher highs. The good news is that a bullish ascending triangle is forming.
It's important to realize that last year's phenomenal performance was an anomaly. And the summer doldrum conditions that the small cap markets have returned to this year, are the norm. Junior gold stocks are working off the tremendous price gains of the past two years and the overhang of a couple Billion dollars in cheap equity financings that have taken place the last year.
As I've stated before, the gold stocks will shift from underperforming the price of the underlying metal, to overperforming, and back to underperforming numerous times over the course of the entire bull market, typically, on an annual seasonal basis. Last year, they over performed spectacularly and now they are underperforming.
Seasonal trading pays
All we need to do is go against the crowd, and make a point of concentrating our buying as close as possible to the end of period of relative underperformance (such as now) and take some profits (or at the very least, avoid accumulating!) as close as possible to the end of a period of strong overperformance. Of course there are always exceptions to the rule, little micro caps with lives of their own, which could be prime buys any time of the year. In my few decades of participating in the small cap markets though, I've found that it pays to take advantage of the rising and falling tides. Stocks bought this way can often have tremendous percentage gains even if the company's project does not succeed. Now you have a built in cushion against losses by taking profits along the way.
What are the signs of a seasonal low? - Apathy Reins
How can you tell you are picking the right time of the year to do this? Historical precedent for one. Market sentiment for another. In years past, this cycle has bottomed late in the year and peaked somewhere in the first half of the year. This seemed to apply in many years to everything from mining stocks to technology high flyers. In the past few years, for reasons too complex to get into here, the bottom has shifted to May with the peak taking place very early the following year. And until the market tells us otherwise, we'll assume this pattern remains in place.
And don't be surprised if the strategy above runs completely opposite to how your investing friends are feeling. This is classic contrary investing, actually a form of risk control to improve the odds when speculating. You are acting pragmatically, while everyone else is going with their feelings, which is most often the wrong thing to do. To be fair, many simply cannot buy at the seasonal lows even if they wanted to because of the lack of liquidity in their portfolios.
This issue I've introduced two brand new picks for you to look at and possibly take advantage of the during these summer doldrums - one oil & gas and one gold. Meanwhile I trust you're having an enjoyable summer and until next time, happy bargain hunting!
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Louis Paquette,
Publisher
www.EmergingGrowthStocks.ca
EGS Copyright 2004
DISCLAIMER -Louis Paquette`s Emerging Growth Stocks is an independent publication committed to providing an objective analysis of the markets, focusing on the TSX-Venture Exchange and individual companies with substantial upside potential over the next six to twelve months. The information contained herein is believed to be accurate but this cannot be guaranteed. The analysis does not purport to be a complete study of securities mentioned herein, and readers are advised to discuss any related purchase or sale decisions with a registered securities broker. Companies featured in EGS are often at very early stages of development and can therefore subject to business failure, and are to be considered speculative and high risk in nature. Reports herein are for information purposes and are not solicitations to buy or sell any of the securities mentioned. The author may or may not hold a position (long or short) in the securities mentioned herein. This publication may not be reproduced without the expressed prior consent of the author. The author is not a registered securities advisor, and opinions expressed should not be considered as investment advice to buy or sell securities, but rather the author's opinion only.