Weekly Commentary – February 17, 2007

by JDH on February 17, 2007

I’m happy to report that in 2007 my portfolio is up 11.2%. When you consider that on January 11, 2007 I was down 10.5% on the year, it’s been a nice comeback (whether or not I’ll be able to repeat my 94% increase from 2006 remains to be seen).

On February 15 I asked a question about portfolio allocation: Where Should I Be Investing? I received a lot of great suggestions; you can read them on the Buy High Sell Higher Forum – Portfolio Allocation Board. The discussion also turned to the topic of when to sell; that’s a great question. I think most of us are good at buying (just buy when a stock breaks out to a new high; that’s the whole point of this blog, after all). The trick is knowing when to sell.

Nothing goes up in a straight line forever, but how do you know when to sell? Based on your comments on the forum this week, and my own thinking, here is my conclusion:

Periodically (perhaps every month or two) review all stocks in the portfolio, and everything on the watch lists, and rate them. You can use whatever rating system you want, but something like strong buy, buy, speculative buy, hold, and sell makes sense to me. Then, based on how many stocks are in each category, assign an optimal portfolio percentage.

For example, I have decided that I want my portfolio heavily weighted towards uranium, with some exposure to gold, silver, and other metals. At the moment, nothing else interests me. (As an aside, how crazy would you have to be to be a buyer of General Motors now, particularly with the rumors that they want to buy Chrysler?; talk about the blind leading the blind). I have further decided that I want the following stocks as my “core” holdings (what I consider to be the blue chip uranium stocks with the best potential for further increases, with a limited amount of risk):

Next, I have my second tier of stocks, which are almost as good:

Then, I have the third tier, which are also good stocks, buy more speculative:

Then, I have everything else. Based on the number of stocks I want to invest in, I have decided to invest as follows:

  1. Top tier stocks – 10% of the portfolio in each of the two stocks
  2. Second tier – 8% in each stock
  3. Third tier – 6% in each stock
  4. All other stocks – generally 1.5% in each stock, although up to 3% for ones I like (an example would be LAM.TO – Laramide Resources, which I like, but it’s had a big run recently, so it’s time to take some profits).

So what does this have to do with when to buy and when to sell? Simple, if a stock has had a big run, like LAM.TO – Laramide Resources, I can drop it from a 6% to a 3%, which has the effect of cashing in some profits. Another example is FRG.TO – Fronteer Development Group Inc.; I love the stock, but it has gone up so much it now represents 16% of my portfolio, which is too much, so I’m selling some to get it down to the 10% level.

Obviously the other time to sell is when a stock breaks below it’s uptrend lines. Three of my stocks are not looking so good, so on Monday I’ll be selling ASX.V – Alberta Star Development Corp., CXX.V – Crosshair Exploration & Mining Corp., and SGC.V – Sunridge Gold Corp..

The beauty of this approach is that you don’t have to make a “buy” or “sell” decision; you simply adjust your portfolio incrementally. Hopefully this means that as individual share prices increase we are taking profits, so that as tops are made we are putting cash in our pockets.

Of course the other aspect to the strategy is to decide how much cash to hold. As of Friday I had 17% of my portfolio in cash. On Monday I will be doing some buying, which will drop my cash component to 2.5%, meaning I believe we are not at a top yet.

I have updated my Suggested Portfolio spreadsheet; you can see full details there.

Here are the stocks not currently in my portfolio that I plan to start buying on Monday:

Here’s a list of the charts I have updated this week.

Charts Updated This Week

By the way, there are four charts I don’t like:

1 Year Chart
Courtesy of Yahoo! Finance
  CCO.TO – Cameco Corp. I don’t understand why anyone would still be holding Cameco. 

The chart looks awful, presumably because everyone now realizes that the flood at the Cigar Lake mine is much more serious than management is letting on.

Stay away from this one.

1 Year Chart
Courtesy of Yahoo! Finance
  CHX.V – Cash Minerals Ltd. I don’t think you need to be a technical analyst to see a downtrend. 

This is a downtrend.

I’ll wait until it makes a new high before considering it again.

1 Year Chart
Courtesy of Yahoo! Finance
  CXX.V – Crosshair Exploration & Mining Corp. 

This is an old favorite, purchased on the anticipation that The Dines Letter was going to recommend it. They didn’t, and it’s dropped like a stone ever since. I’m sure that as soon as I sell it, which will be on Monday, Dines will recommend it, so feel free to buy it. There are lots of better stocks to own at the moment, so I’m moving on, with only minimal regrets.

1 Year Chart
Courtesy of Yahoo! Finance
  UEX Corp. (UEX.TO) 

Dines likes this one, and it has had an impressive run recently, but until it makes a new high, it’s not on my list.


Check out the Top Picks page for current recommendations, and feel free to leave a comment by clicking on the comment button below (you have to register to leave a comment, but feel free to use whatever name you want), or by posting your thoughts on the Buy High Sell Higher Forum.

{ 3 comments… read them below or add one }

davidslane February 17, 2007 at 9:36 pm

When to Sell our Uraniums?

First, a bit about me.

I’m 110% invested right now (yes, that means I’m on margin).
I’m split about 70% uranium and 30% gold, silver and other minerals.

I’m looking to ride micro-cap miners to see a 10x growth in my portfolio as the public mania hits uranium and gold over the next 2 to 3 years.

I started in uranium stocks courtesy of James Dines at the beginning of 2003 and am up over 160% in 4 years.

I own 61 uranium stocks. Yes, that is 61. 15 are down – average of -15% on those. The up ones average around +200% (some I’ve had for 3+ years). Three have reached 1000% (or very close) for me (Laramide, Mega and UEX). Some stocks come from Dines. Some from Casey. Others I picked off the boards (Stockhouse.com). Found Strateco and Forsys there last April and both have made me over 400% since then.

I don’t like to trade these stocks. I prefer to just buy and hold them into 2009 or 2010. Sometimes I take some profits and a few times I dump a stock that just doesn’t seem like it has much of a shot of really hitting it big anymore (like CCJ and TUE.V). Or Dines dumped it (NCR.V or Hornby Bay — thankfully I ignored Dines and kept the old Denison and ERA).

But my biggest mistake has been my buy and hold strategy. Although I have great returns, I am missing really huge returns by holding through the yearly April correction year after year.

Every year, in April or May, all of my uranium stocks correct. Some as much as 40%. They do it like clock work. Just check the charts. And they all seem to start a recovery the 2nd week of June. Every year. And I don’t think this year “it will be different”.

If I could just sell them all in April and buy them all back the 2nd week of June, this action alone would add untold percentage points to my annual return.

So this year, I will not make the same mistake. I will sell all of them this April and buy most of them (my favorites) back the second week of June. But when to sell. I thought I could pick a day when I could sell them all together, but my research tells me that this strategy won’t work.

I examined some 20 to 30 charts of uranium companies to see if I could find a pattern as to when to sell to get the most return and when to buy back. Here’s what I found.

1) Almost every uranium stock typically has a big run sometime during February to May each year, each peaking at a different point between Mar 1 and mid May. The runs typically consist of a 2 to 4 week stretch of continued higher highs with no more than a five trading day break between highs. When it becomes 6 days, sell. (You may stretch that review period to 9 trading days under the right circumstances). This seems the best way to get close to the top.

2) Ideally, each stock should be sold at different times during the March to May period (meaning, the time to sell could be coming up) based on when their individual runs start and stop.

3) Larger uranium stocks tend to peak earlier during this period, but this pattern doesn’t seem to be that strong but worth keeping in mind.

4) It appears safest to sell ALL your shares of each stock as each one hits its peak in Mar. to May and then buy back those shares again in June (rather than just sell half). Sometime you can see a 40% swing down during this period. This yearly pattern just seems too strong to keep half of your shares.

5) You definitely want to buy back in by the second week of June, typically coinciding with a one day big pull back during which seems to always occur the first or second week of June. Seems safe to buy all of your stocks back on that same day as that one pull back day seems to hit them all. You’ll hit the bottom on 80% of them if you buy back on that day.

Curious what others think of this strategy?
Haven’t come up with a strategy for my golds and silvers, but I expect it to be similar.

What about using this strategy at other times of the year? Well, I just haven’t been able to find a pattern to match the April to early June correction that seems to hit everyone. And the other corrections (typically October and December) appear to be too shallow to make it worth trading — unless you really want to be active.

In case people are curious, here are my favorite uraniums:

Tier 1

1. DML.TO – Denison Mining Corp
2. LAM.TO – Laramide Resources
3. PNP.TO – Pinetree Capital
4. MGA.TO – Mega Uranium
5. FRG – Fronteer Development Group
6. SXR.TO – SXR Uranium One
7. PDN.AX – Paladin Resources
8. RSC.V – Strateco Resources
9. SMM.AX – Summit Resources

Tier 2

7. UMN.TO – Uramin
8. URZ – Uranerz Energy
9. IEC.V – International Enexco
10. CXX.V – Crosshair Exploration

JDH February 18, 2007 at 4:38 pm

Very interesting thoughts. To test your theory on the early year corrections (which obviously I experienced in 2006; just click on the Portfolio Performance link at the top right of the page to see what I mean) I looked at two stocks: Pinetree and Cameco. (Many of the others don’t have five or six years of history).

I tried to identify the high point early in the year, and the low point at the bottom of the correction. This is not a precise science, so others may pick different points.

For Pinetree, in 2001 the peak was on January 31, followed by a 54% drop for 65 days to April 6, 2001. The average for Pinetree from 2001 through 2006 was a 39% drop over 51 days. The average peak occurred around February 13, and the average bottom occurred around April 13. (Yes, I realize that’s not 51 days, due to rounding error when averaging).

For Cameco during the same period, the average correction was 28% over 63 days (presumably because it’s a “blue chip” it’s less volatile). The average peak was around February 15, and the average bottom was around April 17, for about 61 days from top to bottom.

Unfortunately this does not have great predictive value, since the peaks and valleys do not always occur on February 15 each year. They could be in January, they could be in April. (If they did occur on February 15 in 2007, we should all be selling now).

Based on your thoughts and my research (which is incomplete since I only looked at two stocks) I think the appropriate strategy at this time of year, after a big run, is to watch the trend lines carefully, and to not be afraid to cash in. If as you suggest a week or two goes by without a new high, that will indicated that the trendlines may have been violated, so selling is prudent.

In conjunction with this I think I will also start increasing the cash component as the early year rally continues. Perhaps each week I will raise my cash component by 10%, so this week it’s zero, next week it’s 10%, the week after that 20%, and so on. That way I am forcing myself to take cash off the table, so that when the bottom arrives in two months I am 60% in cash, which allows me to start buying.

Unfortunately all of these theories are great on paper, but harder to put into practice. Let’s see what happens over the next few weeks.

davidslane February 19, 2007 at 7:49 am

Looking for broken trend lines would work well.

The key is that each stock moves at a different point between mid Feb. and mid May. So you definitely don’t want to skim profits off of every stock together.

You want to find those that are breaking trend lines and then sell those while holding the ones that haven’t moved yet.

With the new uranium auction on Tuesday of this week, plus another big one (I read) next week. Uranium could really take off.

Add to that the hype over the Australian Labor party changing their 3 mine rule in mide April, and I easily see how all the uranium stocks could spike during March and early April and become over bought.

I also wonder if the big institutional banks like Sprott and Canacord use the drill result news releases which come out every Feb. through May to run up stocks, so they can then swing trade them — take quick profits and then beat them down in June to shake out the weak hands — before buying back in then for the summer rise.

And from what I’ve seen, even though the summer is supposed to be dead, most uranium stocks have nice returns when buying at a June low. It is amazing that there always seems to be a day in mid June that is the low for everybody. Can’t wait for that day.

In addition to CCJ and PNP.TO, check out the charts of long timers to see the pattern (at least for 2005 and 2006): FRG, FSY.TO, MGA.TO, PDN.AX, SMM.AX, ERA.SX, EMC.TO, UEX.TO. In fact, take a look at a whole bunch more.

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