This Week’s Commentary – August 4, 2007 – Summer Doldrums Mean Profits Ahead

It’s the summer, so if you only want to devote ten seconds to my thoughts this week, let me re-state what I said last week, and the week before:

We have reached the bottom, and we will continue to move up from here.

Here’s the longer version:

Why do I think we have put in a bottom? Simple. Most stocks in my portfolio have not re-tested their lows of earlier this year.

In addition, some are actually moving up. Here are some examples:

URZ – Uranerz Energy Corp, in which I have reduced my holdings, was up over 8% this week. I don’t plan to buy more, but at least the direction at these levels is encouraging.

JNN.V – JNR Resources Inc. was up 2% this week, closing at $3.07. Last week I said “The bottom was reached way back on June 13 at $2.39, and we are now trading at $3.01, so it looks like the worst is behind us. This is one of only a few of our stocks that is actually trading above it’s 50 and 200 day moving averages, so this would be a good one to mark as accumulate“. I took my own advice and added to my holdings this week.

PAA.TO – Pan American Silver Corp. – up 5.4% this week, closing at $29.90. It bottomed at $27.52 on January 9, and then bottomed again at on June 28 at $27.16. I like the silver and gold markets, so a double bottom looks good to me. This one is also marked “accumulate”.

Also on the silver list is SSO.TO – Silver Standard Resources Ltd. closing the week up 4% at $37.38. We are $2 above the February and March bottoms, so I see no reason not to accumulate at these levels.

PNP.TO – Pinetree Capital Ltd. bottomed at $9.08 on February 7 (split adjusted numbers), touched $9.26 on March 5, $9.12 on June 26, and recovered to $9.75 on July 25, and then fell to $9.03 on August 1, before recovering to close the week at $9.15. That looks to me like the base is holding. They have also been very active on the acquisition front; I get almost one e-mail alert each day announcing a new acquisition. They are diversifying out of metals as well. This week they bought shares in Ziplocal, a local search engine primarily in Montreal and Toronto. I spoke to the company, and they have aggressive expansion plans, and even Google acknowledges that local search is the wave of the future, so I like this investment. I bought more Pinetree this week.

SMD.V – Strategic Metals Ltd.. was up 3% this week, closing at 95 cents (the 52 week high is $1). I expect it to continue to test new high territory. This is a nice success story, and volume increased significantly in July over May and June, which tells me the insiders are buying in anticipation of more spin out type deals. The stock traded as low as 88 cents briefly this week, so I plan to put in a buy order at 90 cents to see if I can pick up some more on any pullbacks. I like it.

Of course all is not well.

Last week I said this: On March 5, 2007 PDN.TO – Paladin Resources Limited made a low for the year, intra-day, at $6.75. Up it went from there, and then came all the way back down to an intra-day low of $6.81 on July 10, 2007. So far, so good. Then, on Thursday afternoon Paladin, at 12.52 pm, traded at $6.58, before recovering to end the week at $6.95. As I showed on Wednesday, the RSI, the MACD, and the MFI are all turning upward, which probably means a recovery is at hand. Again, though, we won’t know until this time next week. Well, apparently now we know. Paladin closed the week at $5.76. This is probably one that needs to be liquidated, or at least reduced in weighting. The next support level is around $4.18 from last October 20, so it’s probably wise to take some money off the table at these levels. My cost is around $4.79, so no point in watching all of the profits disappear.

CCO.TO – Cameco Corp has a bunch of closing prices in the $42 range: February 20 at $42.39; March 1 at $42.44; July 24 at $42.85. The worst came on Thursday at 2:52 pm when Cameco his $41.74, before closing the week at $43 even. This week Cameco closed down over 4% at $41.20, the low point for the year. If I was a day trader I would probably put in a buy order 50 cents below market, with the hopes of buying for a quick flip, since this is obviously a volatile stock. However, I am not a day trader, and I see no point in taking silly risks, so I don’t own it, and I’m not buying.

In other news, yesterday Mr. Dines issued his latest Dines Letter. I didn’t see anything new in it, so I don’t expect it will have any impact on the markets in the coming week. (Although I did get a chuckle from the letter to the editor that pointed out that the Royal Bank of Canada is Canada’s largest private bank, and has nothing to do with the Bank of Canada that sets interest rates, as stated by Mr. Dines in a previous letter. Instead of apologizing for his obvious error, Dines simply said “Thank you for sharing that with your fellow TDLrs”, without ever acknowledging his mistake. Hmm. Low state of hyper needing to never admit a mistake?).

However, at some point, all newsletter writers have to prove their worth by issuing a “back up the truck” recommendation. Dines will, it’s just a question of when, so I would prefer to be in this market rather than not when he does.

I also know that in this industry takeovers are inevitable. Cameco has to buy someone to meet their production commitments. I think we are well positioned to take advantage of that when it happens.

The summer doldrums, by definition, may continue for the rest of the summer. But as I saved above, we will cut our losses, and stick with the stocks that are forming solid bases. We will stay in the game, in anticipation of the back up the truck recommendations, or more likely takeover news, just the antidote to the summer doldrums.

As always, please leave your thoughts by posting a comment below, or on the Buy High Sell Higher Forum.

Thanks to all for reading and contributing, and have a profitable week.