Key Sectors To Watch In 2014

Junior Gold Miners

If gold miners got destroyed in 2013, junior gold miners got taken to the woodshed, obliterated, then eviscerated.  You really can’t find a more beaten up sector over the past 3 years.  You can’t find a sector that is more hated, where more pessimism and fear reign supreme.  So if you’re a contrarian, you should stand up and take notice.

Here’s something that you need to understand.  Junior gold miners don’t always just go down.  In fact one of the biggest gains in any sector from its 2008 low to 2011 high was in the junior gold mining sector.  The Canadian Venture Exchange gained 256% from its December 2008 bottom to its March 2011 top, a huge gain over a period of 27 months.  The GDXJ junior gold ETF came out in late 2009.  In 2010 it was one of the best performing ETFs in the market gaining about 67%.  From its 2010 low to its 2011 high, a little over a year in duration, GDXJ was up over 100%.  So the junior miners have experienced bull markets in the past.

There’s a saying that bear markets follow bull markets, and bull markets follow bear markets.  For a great example of that checkout the history of the Canadian Venture Exchange.  The chart below shows the major bear markets shaded in red, and the major bull markets shaded in green.  If you notice after the 2008 bear market ended, an increase in buying pressure went on to produce the bull market from 2009-2011.  That’s what is missing currently as the Venture has built a base but buying pressure still hasn’t shown up in full force.

Taking a closer look at the most recent bear market in the Venture notice that momentum to the downside bottomed way back in October 2011.  Since that low there’s been a positive divergence in momentum as the Venture has drifted lower at a slower pace.  The Venture then made a crash low in April 2013, followed by a slightly lower low in June 2013 that was quickly recovered.  That started setting up the Stage 1 base that is still ongoing today.  The Venture started to fade in late 2013 due to tax loss selling but has quickly recovered in 2014 to keep the base intact.  So in total the Venture is looking at a 9-month base that is just in need of some volume to establish a breakout.

Palladium

Palladium is extremely intriguing in the precious metals space because of the way it has diverged from the carnage in the gold and silver markets.  Palladium amazingly made a low for its bear market in October 2011!  This is only one month after gold made its recent bull market high.  That’s pretty incredible considering they typically trade together.  Ever since its bottom palladium has formed a massive 3-year cup with handle formation after rounding out the bottom of the cup in 2012.

In 2013 while gold and silver were getting slammed, palladium diverged and held its ground.  It traced a choppy handle to the cup that formed in 2012.  The bottom of the handle occurred at the same time gold and silver bottomed in June 2013.  What’s interesting to note is the volatility in palladium has collapsed, which typically leads to huge moves in a market.  Palladium probably won’t be able to rally until the pressure on the precious metals markets finally goes away, but once it does look for potential fireworks in this metal.

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