******** State of the HUI update ********
Well;
1. We got our well timed bottom re-entry.
2. We got our "V" Rally Bounce of +40ish points.
3. We got + 30-40% moves in some individual stocks.
4. The Juniors, Small Caps & So African plays outperformed.
Hopefully for those that re-entered on a Portfolio weighted & levered basis...they sold a little into strength (1/4 to 1/3rd), used some "Call Options" for initial leverage off of the "V" bounce and have pocketed that leverage (10-15%)...have rotated some of those profits into some solid laggards and have set prudent stops for another 1/3rd.
But, then yesterday...
Ahhh Manic Monday's - re:
finance.yahoo.com
A nice initial open and then.....WHAMM.
- down she goes.
Why ?
...and now What ?
Well as far as the current "state" of the HUI.
All is well...for now:
stockcharts.com[w,a]daclyyay[dd][pb7!b21!f][vc60][iut!Lh14,3!Ll14]&pref=G
On a nearterm trading basis; the Rally Leg is still intact as the 7 dma of HUI 196.15 is still solidly above the 21 dma of HUI 187.97.
A 50% retracement of the move from HUI 165 to HUI 204 corresponds closely here to the 21 dma of HUI 187.
Traders should have mental stops in place...but, please don't pre-set them... as invitations to shake you out - often get RSVP'd (vbg)....and don't get stopped out completely on a normal retracement pullback.
1st Rule for a Good Salesman - is to "ABC" - Always Be Closing.
1st Rule for a Good Trader - is to "ABTP" - Always Be Taking Profits....as well as to always be 'protecting' those hard earned paper profits not yet taken and above all - never, ever, EVER - give it all back.
Have a portfolio & money management plan that fits your overall style & strategy...but, always be taking profits on "V" bounces and Never, Ever - EVER...give it all back....but, also balance that mindset & strategy with allowing a healthy portion of your trading portfolio to participate in the ultimate upside to significant moves....and a great way of doing that is to take a small percentage of your interim trading profits and to continually buy some outlying, out of the money Calls, or LEAPS.
This defines and limits downside, while retaining significant upside leverage - without being significantly exposed on a portfolio weighted basis.
Another strategy is, on these pullbacks after you've already taken profits and are approaching stop-out levels... to be targeting prudent, fundamentally supported re-entry levels...and to perhaps "Sell" some Puts at those desired re-entry levels.
- if not hit, cash proceeds from the Put Sale are retained as income... if hit; you get a "discounted" re-entry at levels already targeted.
On this move of late... those "Put Sale" levels were not hit...became income (can be used to buy "0" cost Calls & Leaps later on pullbacks) and then on the resulting rally leg... those levered nearterm Call Options come off 1st - (never let a profitable levered trade expire worthless),taking and then flipping some of the profits from the high-beta early movers into solid laggards (mainly quality Jr & Exploration Plays) came 2nd and scaling back an overweighted/leveraged trade into strength (pre-selected target levels) comes 3rd and selecting & setting prudent stop levels back to a core holding/trading position comes into play if/when pullbacks accelerate.
Bottomline: imho, Traders should have pockted some nice option leverage, garnered some cash income from Put-Sale levels not hit and hopefully have taken some profits atop a 30-40 point HUI move here...and have set prudent mental stops in anticipation of (versus in - reaction to...) pullbacks...and lastly; as the move is still technically intact...to still be riding at least a 1/3rd to 1/2 Trading Position here.
vis a vie - the recent decimation of the Junior & Exploration Stocks....interesting piece from Jim Sinclair & his Mineset Web Site:
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216.187.82.180
Thursday, June 16, 2005, 3:33:00 PM EST
The Short End of a Big Stick
Author: Jim Sinclair
You might like to pass this information along to the management of your junior gold company be that a junior producer or an exploration and development entity.
We all know that there has been a huge, successful short position assumed both legally and illegally in almost every such company over the past year.
When you consider this situation, you must conclude that the owners of these short positions are non-registered international hedge funds or a singularly large hedge fund.
We know there is no question that computer-based stock transfer systems for shares of all these companies can easily disguise the short positions and actually make delivery. Such a position is almost always FREE to the short seller.
Legislation has been put in place to prevent illegal short selling of just this kind but so far this legislation has not translated into junior shares and certainly not to unlisted junior shares.
It appears that these profit-rich shorts feel they have maximized the downside potential of their ability to sell - without upticks and without money behind the transactions - unlimited amounts of junior gold producers or exploration and development companies by pounding bids and bidders into severely price-depressed long positions.
I know of that which I speak because I have had just such a contact from such an entity asking if my company would be interested in a significant private placement predicated on the receipt of promptly registered and saleable shares after due diligence.
This entity identified itself as an unregistered international hedge fund out of the Grand Cayman Islands and gave specific people as their reference. They will tell the company that they have to do their due diligence, while requesting information common to such a transaction. It is information a shareholder can receive but rarely asks for even though he's entitled to it.
The fact they did not research me or my company was evident because I have been around the block for a long time, personally knowing some of the people they gave as active fund partners - even the long time dead one.
My advice to any company in the junior precious metals sector who has in place a means of financing their operations is to judiciously avoid uninvited and unknown private means of financing. The probability is that this unknown entity is in fact the reason why their share prices have been so overtly impacted beyond fundamental reason and in proper relationship with the price of gold.
In a sense, I admire the courage but not the cunning of what is I believe a small group - or possibly a singularly large unregulated hedge fund - covertly hiding its real identity by operating out of tax sheltered, crime ridden international banking centers.
I am not suggesting that these people expect an immediate roaring bull market to occur in this group but they do sense that they have maximized the downside of the situation under their attacks and now wish to cover covertly.
Back in the 1960s, when I made my living as a market maker in securities, it was not uncommon for some to attempt the same scheme but in a different mode. A short seller, having broken the back of a situation, knows which brokerage house has taken for their own account or their client's account the major percentage of the short seller's line.
The short seller would then use an agent to contact the hammered brokerage house, expressing a possible interest in the significantly depressed company that had its price broken. They would of course request due diligence and take their time reviewing everything.
Generally the company or the broker would be eager to have this entity take a positive interest. Upon completion of its review, the agent then would say yes either to a private placement or to take a large piece of the broker's position, saying that they will buy the balance in the marketplace thereby acting to assist the price of the company's shares pleasing the broker in the process.
The end result was generally a private placement or purchase of a large block of the highly depressed company. Then the buyer disappears and has no further interest in the company's shares as the cover had been made at a singular price in one transaction. Here comes the short seller's singular price and singular transaction cover again slightly modernized from the 1960s style.
The lesson here, I believe, is that the bottom has been achieved in the precious metal juniors with the courage to avoid private placements as long as they can survive without it until 2006 when gold and gold shares will start on second major bull leg of a three leg major generational gold bull market.
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...more, later this afternoon...catch up time from a long holiday weekend.
Watch POG & be Smart on your "mental" Stop Levels.
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