BullMarketRun.com

CDNX and Gold

On August 29, BMR issued an Investor Alert:  “September is shaping up to be a possibly dramatic month of trading for the CDNX with BMR anticipating a major upside breakout.”

Indeed, September has been an incredible month so far for the CDNX with a major spike in volume and a 200-point advance (13%) in 17 trading sessions.  Our “big picture” macro view is that the CDNX is in the midst of an historic bull run that started in late 2008 and will not top out until the “Gold Mania Phase” kicks in (which we’re not even close to right now).  After the masses jump on board, just like what happened with the “Dot Com” craze a decade ago, the CDNX could easily be at 3000, 4000 or 5000 – anything is possible.  The investor appetite for junior mining stocks, in our view, is only beginning.  There are a lot of fundamental factors behind this which we have written about already and will continue to write about.  Gold is becoming an alternative currency, and the impact of China (as well as other emerging countries) on the Gold market and commodities in general is hugely significant.

The CDNX enjoyed its sixth consecutive weekly advance, closing Friday at 1699.55.  It’s up 17% in six weeks and a whopping 27% since the July 6 low of 1343.  At some point in the near future, of course, there WILL be a minor pullback in the CDNX.  By minor we mean likely only about 5% as the technical and fundamental underpinnings of this market are just too powerful right now to suggest a deeper correction, and of course we already recently went through a 20% sell-off which ended in early July.  This past week the CDNX showed some signs of temporary exhaustion as John outlined in his article Thursday.  The Index is clearly in overbought territory and a pullback now would be a welcome and healthy development.  The probability of an imminent minor correction has increased significantly.  We’ll see what the coming week brings.  It’s possible this market could become even more overbought in the next week or two before a correction sets in, but the warning flag has been raised.

Given the extremely bullish outlook for the CDNX over the next six months, a few strategies investors should consider are as follows:

1. Maintain a core position in high quality junior mining stocks.  The primary trend is up.  Don’t try to time the market’s every move because that’s impossible to do;

2. When buying new stocks at this particular time, avoid buying ones that are already excessively overbought (based on indicators such as RSI and Stochastics).  Look for stocks that are consolidating or coming out of a consolidation;

3. Keep some cash available or easily accessible for buying into any significant weakness whenever it should occur;

4. Do not “chase” an already heavily overbought stock and do not borrow  money to invest;

5. Cut your losses short (eliminate any under-performers) and let your profits run.

Gold hit $1,300 this past week for the first time ever and Silver jumped above $21 for the first time since October of 1980.  Gold closed Friday at $1,297 , gaining $23 for the week after a $27 gain the week before.  There are many factors driving Gold right now including those mentioned above as well as central bank buying, investment buying and a very accomodating U.S. Federal Reserve which came out with this important statement last Tuesday which was music to the ears of the Gold bugs:  The Fed is “prepared to provide additional accomodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.” The Fed, which has clearly shown its desire to engage in further “Quantitative Easing” (QE), doesn’t seem to be too concerned about a falling U.S. Dollar which tanked this past week to 79.27 on the Index.  A lower U.S. Dollar (a gradual and controlled drop from current levels) may indeed be viewed positively by the Fed as that will give inflation a desired boost (higher import prices) and help American exporters.