Fishing Line Sell Offs Beginning to Appear in Miners
Friday November 11, 2016 12:29
There is an old adage on Wall Street that smart money “buys fishing lines and sells rhino horns” during bull markets. This refers to buying panic selling and selling panic buying of a particular stock, or sector. I believe this is the best approach to making the most money in the mining sector as it is prone to these types of exaggerated moves.
The Dow Jones Industrial Average has made a stunning upside reversal from being limit down 5% on Tuesday evening to an all time high close by Thursday afternoon as Donald Trump shocked the world to become the President Elect of the United States. The miners have been selling off as gold made an equally stunning $80 downside reversal and are now approaching the 20-21 GDX strong support target I have mentioned in previous posts.
There are fishing line sell offs appearing in many of the quality miners which ran too far ahead of the gold price after being brutally beaten down during the 2011-2015 bear market. This is a very good place to start buying if you missed the first run up in the new miner bull, which began in January of this year.
Tax loss selling, from latecomers to the sector, has really picked up as investors sell miners in which they purchased toward the end of the first leg up in July/August. This is typical miner action here as veterans of this sector have been waiting for the final panic lows to take place before putting fresh capitol to work in miners they wish to own, but missed during the first leg up.
Rick Rule is one of the most intelligent and oft-quoted investors in the resource sector. One of my favorite Rick Rule-isms is “in the mining sector you are either a contrarian, or a victim”. This is one of the most expensive lessons in which I learned very early on while investing in mining stocks.
What is taking place right now in the sector is a contrarians dream as many quality miners are being sold for a tax loss by the victims who bought rhino horns several months earlier. It is time to be a contrarian when you see fishing line sell offs of 15-25% within a few days and towards strong support levels during a new miner bull. This is the best time to be buying something that you have done your due diligence on and wish to own until this new bull matures.
On Thursday, I was looking over the chart patterns of the many of the miners in which I follow. There is capitulation selling now taking place which leads me to believe we could be getting very close to a final low of this correction in the miners.
David Erfle is a 52 year old self-taught mining sector investor. He stumbled upon the mining sector in 2003 as he was looking to invest into a growing sector of the market. After researching the gains made from the 2001 bottom in the tiny gold and silver sector he became fascinated with this niche market. So much so that in 2005 he decided to sell his home and invest the entire proceeds from the sale into junior mining companies. When his account had tripled by September, 2007, he decided to quit his job as the Telecommunications Equipment Buyer at UCLA and make investing in this sector his full time job. He personally survived two bear markets, witnessed incredible sector changes and had to alter his investment philosophy numerous times in order to adapt to changing market conditions."