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Looks like “bargain-hunting season”
is cancelled this year
First the summer doldrums didn’t happen.
Now, during the seasonally weakest months of the year, stock
indexes are hitting multiyear
highs and charts of individual company stocks are going
hyperbolic! Time out! TSX-Venture Index Chart from.
Normally this time of year, I am surveying
a dozen or so flat lined, beaten up stock patterns for the
annual “Bargain-Hunting” Issue.
But there are no bargains short of the value plays I have
been picking in recent previous issues.
Let’s do a little recap of how the major
American and Canadian stock indexes have done YTD (as of
Nov 4, 2003, all in round numbers):
Dow: +30%
NASDAQ: +48%
S&P-TSX: +20%
TSX-Ven.: +45%
Gold: +10%
HUI Index: +48%
In short, both the overall markets and the
gold sector have been rocketing since April. The recovery
began gradually and has accelerated
ever since. Oddly enough, it’s been two of the more
speculative sectors, technology and gold mining where the
action has been most frenzied. And nowhere is that more
evident than by looking at the TSX-Venture Index. Starting
in the beginning of October, it’s nearly gone vertical!
Huge liquidity is being created by soaring
prices of resource stocks like Ivanhoe Mining and Ivanhoe
Energy or anything else Chinarelated
lately. The small cap mining market is in the grips of a
minimania where momentum, rather than fundamentals are the
name of the game.
This raises all sorts of warning flags I feel
I would be remiss not to point out. One of the best lessons
on what went right in my investing
experience was sitting tight and NOT deploying cash into
the stock market in the months preceding the October 1987
Crash. Waiting for the markets to adjust provided a 23%
discount (instead of a haircut) and pretty much immediate
gratification after buying into fear. And the charts today
look similar to the ones back in the summer of 1987. Markets
move up and they move down. Personally, I find the best
time to buy aggressively is after cyclical declines, not
inclines. And that currently can’t be said of the
most recent period.
A second indicator, the Gold price channel,
is still much closer to overbought than the oversold buy
zone. At this time the price would need to drop closer to
$360 to approach the oversold/buy zone.
Another one of my indicators, this one proprietary,
is flashing caution. It’s my NSI - newsletter sales
indicator. Happily, subscription sales are brisk these days.
Sadly however, at least in the past, I have found that when
demand for my product peaks, the markets are about to do
the same.
This is not to say overbought markets can’t
get even more overbought. Nor can I say that gold prices
aren’t poised to break $400 anytime now. I see just
as we go to print the price is hitting new 7-year highs
decidedly above $390 now. “Point and figure”
calculations imply a short term target of $420 which should
set the gold stocks on once fire again.
What I am saying is that I have less conviction
right now because the market’s direction is out of
sync with the gold and small cap
seasonal cycles right now. The rising market during these
normally quiet times of the year raises an important strategic
question for
those of us who trade around the small cap seasonal calendar.
That is, is the strength we’re seeing in recent months
actually a sign of
positive divergence, indicating an explosive first quarter
of 2004 to come? Or is it “robbing from” strength
in the first quarter? At this
point I honestly don’t know. One scenario I can envision
though, if December is strong, is a frantic New Year that
gets ahead of itself and
blows off early, say, by February.
I can tell you that the recent strength in
gold prices is not reflecting a surge in physical demand,
that in fact physical demand for gold is
declining in price sensitive markets like India. The surge
in demand is totally from investment, speculating on higher
prices.
But markets don’t make high double-digit
gains indefinitely. That being the case, we’re continuing
to follow the strategies we’ve
adopted so far this year, with a new twist:
That is, for one, we are continuing to substitute
price action for the annual seasonal small-cap cycle as
our leading guidepost for how
aggressively to be speculating at any one time. We didn’t
sell aggressively by April as we normally would have done
since the Gold
price chart channel was telling us the gold sector had actually
reached an intermediate bottom and was if anything in the
buy zone. Likewise we will not be aggressively buying here
as we normally would during this time of year because the
gold price channel is closer to
overbought than oversold.
Second, as for the kinds of gold stocks to
look at, we’ve had great success with the market leaders
such as Newmont (Franco Nevada
actually) Wheaton River and Endeavour Mining Capital and
we continue to hold them as core positions until the end
of the bull market
or unless they give us a reason to do otherwise. But beginning
this year new money is being directed to situations we consider
to have
“extreme value”, be it undervalued assets or
earnings.
However at this point, anything of any quality
has very likely already had a big move (and if not, one
has to ask oneself, why not?).
So for that reason, it may be that the biggest speculative
gains (apart from major mineral discoveries) going forward
now will be found
with NEW situations that haven’t had the opportunity
to move yet because they are new IPO’s or RTO’s
(Reverse Take-Overs) of recently
cleaned up “shell” companies. We include one
such new pick for this issue, a new IPO named Amera Resources
on Page 3.
To our anchor of value-oriented positions,
just to keep things interesting, we have added and continue
to follow just two other extreme Risk/Reward situations;
Chuck Fipke’s diamond play and IMA Exploration’s
potentially very rich, very large silver discovery in Argentina.
Both of these plays are approaching major milestones that
could lead to life-altering profit potential (just don’t
forget they also both entail significant risk).
In the meantime I urge caution going forward
and leave you with a link to an article by Adam Hamilton
entitled “Wisdom of Jesse Livermore 6”, which
is basically a book review including the best highlights
of a one we might all want to considering reading, Reminiscences
of a Stock Operator, by Edwin Lefèvre.
From the book:
“It never was my
thinking that made the big money for me. It always was my
sitting. Got that? My sitting tight! It is no trick at all
to be right on the market. You always find lots of early
bulls in bull markets and early bears in bear markets. I’ve
known many men who were right at exactly the right time,
and began buying or selling stocks when prices were at the
very level which should show the greatest profit. And their
experience invariably matched mine— that is, they
made no real money out of it. Men who can both be right
and sit tight are uncommon.”
“The reason is that a man may see straight
and clearly and yet become impatient or doubtful when the
market takes its time about doing as he figured it must
do. That is why so many men in Wall Street, who are not
at all in the sucker class, not even in the third grade,
nevertheless lose money. The market does not beat them.
They beat themselves, because though they have brains they
cannot sit tight.”
Adam’s article, which I think is definitely
worth a read, is here: http://www.zealllc.com/2003/jesse06.htm
I can’t guarantee these particular lessons
necessarily apply today, but I wouldn’t be surprised
if they did. At least sooner or later. In the meantime,
let us enjoy the ride, but not get caught up in it.
Swing Trader’s Corner
In keeping with my cautious stance on the
overall market and gold sector at this time and our newsletter’s
motto of “Finding Extreme
Value in Small Caps” - this issue I’ve picked
a low market capitalization stock that hasn’t had
a chance to move up yet - because it only
starts to trade within about ten days.
Our pick (the complete issue) is available
to non-subscribers for US$10 via PayPal through our website
by “subscribing” and then cancelling your subscription
after the issue is received (or stay on). Just go to www.emerginggrowthstocks.ca,
subscribe, and the issue will be emailed within 24 hours.
Other features of this issue’s
pick:
- Market cap of $4 Million based on IPO price
- Exploring in Argentina between two large gold belts
- “offspring” of a strong group with recent
grass-root success
This issue also includes:
- A New potentially revolutionary UAV (drone) technology
for conducting ariel geophysical surveys
- updates on what we believe are the two most prospective
exploration programs underway today, plus, a brand new Canadian
gemstone dicovery (see right)
- a list of all of our gold stock picks to date.
True North Gem’s “True
blue beryl” crystal sample discovery, made in southestern
Yukon Territory
