Mike Swanson newsletter. For some reason I'm on the mailing list for this. In case it is of interest, here is his latest:
Volume 7 - Issue 16 - Circulation 71,000
Dear investor,
We sent a critical bulletin to full WSW subscribers Tuesday morning alerting them to a beginning corrective wave in gold stocks. Here are quotes from this bulletin:
Monday was one of the most critical days in the gold market I've seen over the past year. It was what you call in the stock market a pivotal day. Gold stocks have been in a corrective downtrend since the end of January. In the middle of May they began a counter trend rally that took the XAU up to the 150 area and the HUI to a marginal new high while gold blasted off to over $600 an ounce. However, gold stocks did not confirm the rally in gold. Key bellwethers such as Newmont and Barrick Gold did not even come close to approaching their highs as they badly lagged the action in the metal. The juice in the gold stocks over the past few weeks came from tiny exploration stocks and junior producers - stocks whose action aren't led by institutions, but by small gold stock speculators. Those are the stocks that lead at the end of a rally and not at the beginning.
Yesterday was important because gold once again made a new high while the XAU and HUI gapped up and then closed deep in the red. The reason they dropped wasn't because a wave of selling hit gold stocks, but because the buyers in them simply disappeared. I know, because I was trying to sell short several million dollars worth of gold shares in some of the large cap gold stocks and could only fill a fraction of my orders. Short sales have to be filled on up ticks on the ask and there simply weren't enough of them to fill my orders. The buyers in the gold stock market literally disappeared yesterday.
This is extremely ominous, because rallies in any market are fueled by buying and they continue until all of the buying pressure is exhausted. There are only so many people waiting to buy on the sidelines. But once they all get on board an uptrend, that trend exhausts itself and a correction begins. I've certainly seen signs of wildly bullish sentiment in the gold market - the type of sentiment that comes at tops.
Last week I got a surge in emails from people who were scared that they were missing out on the gold bull market. A friend of mine who works as a truck driver told me that someone not even in the stock market approached him and asked him how to buy gold stocks. He wanted in because he heard someone on the radio say gold is going to $1,000 an ounce and you must buy now. Maybe it was Jim Cramer on his "MAD MONEY" show. Booyah!
Yes it is mad. On This past weekend's FOX News Bulls & Bears show, Tobin Smith, who has been mocking gold bulls for the past two years, said gold is going to $1,000 an ounce. Who isn't in gold now? Who isn't bullish right now? Seems like it's just me and a small group of people I can count on one hand.
If everyone is in gold stocks and there is no one left to buy then how can they go higher? The answer is, they can't. Not until some people sell and raise cash so they can buy later and bring more fuel to the gold bull market. That means a resumption of the intermediate-term downtrend in gold stocks.
But this is a very good thing, for us at least! When this correction is over we'll have the buying opportunity of the year in gold stocks just like the one we had in May of 2005. It should come at the end of this month or sometime in May.
Unlike the rally we've seen the past three weeks, the one that comes after the real bottom will last the rest of the year. That's why I ignored this past rally. The signs of a long-term bottom weren't there. And instead of getting caught up chasing stocks higher, I chose to be patient and wait for a real bottom.
Long-term I'm more bullish than ever on gold stocks and I'll be buying hand over fist when I think the real bottom comes. We won't miss it. It will be the trade of the year. For now I am trying to position myself with some short positions in some of the large cap gold stocks (with stops on their April highs). If you are long gold stocks you can hedge yourself with the profunds short precious metals fund (symbol SSPIX) or with a purchase of XAU or HUI put options. Watch today's action. If gold goes up above $600 again and gold stocks once again struggle take that as confirmation of my thesis. Aggressive traders can make bets against gold stocks. I'm looking at Newmont, Barrick, Harmony, Goldfields as shorts. I have stops on their recent and think they will fall to at least their March lows.
We are expecting this correction to last through at least the middle of May and once it ends we will see a final buying opportunity in gold stocks. They will likely never be that low ever again. The gains to be be made the rest of the year on the subsequent rally will be incredible.
However, you have to prepare yourself for this opportunity. Raise cash and get ready to buy. Sell some of your lagging stocks now. If you have huge exposure to gold stocks lighten up on some of your holdings. Get ready to buy on the next bottom. |
