Last week I posted analysis explaining why I thought the market was giving us “buy” signal from the trading action in the mining shares. As everyone should know, stock forecasting is more like “horseshoes and hand-grenades” than a precision science. Based on the action from Thursday and Friday, I am re-iterating my strong buy call.
During the last week I saw three strong contrarian signals that the manipulated sell-off in the precious metals was bottoming.
1) The Marketvane gold and silver investor sentiment readings hit levels not seen since June 2013. The silver sentiment reading hit it’s all-time low seen June 2013. The gold sentiment reading did not hit an all-time low, but it went below 50, a level which usual coincides with market bottoms.
2) The HGNSI (Hulbert Gold Stock Newsletter Index) dropped to -32. This is a near-perfect contrarian indicator. -32 means that not only are gold stock newsletters telling their investors to “sell,” but a high percentage are recommending that subscribers go short.
3) For the first time ever, I received a “hate” email. Some financial adviser who works for Merrill Lynch/Bank of America out of Arizona sent me a malicious email. That’s a first and my first reaction was “we’re bottoming.”
Perhaps the most telling indicator is the trading action in JNUG. Below is a daily graph of JNUG (a leveraged ETF based on a junior mining index) and a 2-day, 3-minute graph (click on the graphs to enlarge):
From this graph you can see definitive rising volume during the sector’s move higher from early June, and definitive declining volume during the manipulated sell-off. It would appear that on Thursday we saw “capitulative” selling from people like the Merrill Lynch financial adviser. Rising volume on moves higher, followed by declining volume on sell-offs is typically bullish.
The next graph shows a 2-day (Thurs-Fri) 3-minute trading graph for JNUG:
As you can see from this graph, Thursday’s capitulative sell-off had heavy selling into the close. On Friday, not only was JNUG heavily bought into the close, but it popped up over $1 in the last few minutes on very heavy volume. JNUG continued to drift slightly higher in the after-hours trading Friday (shaded area on the right).
Again, we will not likely see a “V” bounce in the sector. There’s motivated forces (Fed, Goverment, Comex paper bullion banks) trying to keep a lid on the sector. But last week saw extraordinarily heavy buying in the Asian physical market (record deliveries on the Shanghai Gold Exchange on Friday). Plus India, despite import controls, has started to buy a lot more gold than it was buying at this time last year.
My short-term, large-cap trading play exceeded my target when I first issued that call in July (it bounced up over 10% before the sector sell-off hit). The stock was hit pretty hard in the last and it has given investors a great entry price for another short term trading play OR long term entry into a high quality stock. Ditto with the stock play I posted last week. This Company will be starting up its first mine in December or January and is quite undervalued relative to the intrinsic value of the gold it has in the ground.
You can access these two reports and some great junior mining stock ideas here: Mining Stock Research