May 10, 2008 – A Sucker’s Rally in Uranium?

by JDH on May 10, 2008

Last week in this very space I told you that I was writing my “most important blog posting” since starting the Buy High Sell Higher website in November, 2006. I then went on to give my thoughts on Gold, Uranium, and the market in general. I stand by what I said last week, so after my long-winded thoughts last week, I’m going to keep today’s comments somewhat shorter and to the point.

My plan last week was as follows: I said there will be more bumps along the road, so I picked up more AEM.TO – Agnico-Eagle Mines Ltd., G.TO – Goldcorp Inc. and K.TO – Kinross Gold Corp. last week, “and if we have another good week I’ll sell what I bought and pocket the cash.” Well, guess what, we had a good week.

On April 29, 2008 I paid $35.22 for G.TO – Goldcorp Inc.; I wanted a 10% profit, so on Monday I put in a sell order at $39.95, and it got filled on Thursday. I then sold a few more shares on Thursday at $40.32

Why? Here’s a six month chart:

goldcorp 6 month chart

As you can see, Goldcorp peaked on April 16, and has been in a down trend ever since. Here’s the chart for the last month:

goldcorp 1 month chart

I’ve marked with a green arrow April 29, the day I was buying, because the RSI had gotten so low I assumed it had to go up from there. The big blue arrow shows the action on Thursday. The stock had a huge one day run, which generally doesn’t sustain itself. In addition, the RSI had gotten higher, and the 50 day moving average appeared to be a resistance level. So, I sold.

We closed Friday at $39.71, after falling 99 cents on the day, so I’m happy with what I got on Thursday.

On Monday I plan to put in some buy orders at $34 and see if I can get filled if the market has some week days again.

I won’t bore you with all of the charts, but I used the same strategy on other stocks as well. For example, on April 29 I bought DML.TO – Dension Mines Corp. for $6.57; I sold it on May 8 for $7.40.

I didn’t get filled on all of my sale orders, but I’ll try again next week on AEM.TO – Agnico-Eagle Mines Ltd., and K.TO – Kinross Gold Corp.

In addition, I did some clean up work, selling some losers like JNN.V – JNR Resources Inc.

Last week I also advanced the notion that we should be buying stocks that are making new highs, not trying to grab stocks at the bottom. To that end on May 2 I paid $133.25 for shares of RIM.TO – Research in Motion Ltd. RIM closed this week at $133.35, so I’m not exactly a billionaire, yet. However, in my on-going quest to find low risk ways to make a dollar, on Thursday I sold the May 135 calls against RIM. This covered write brought in $3.35 per share.

If Research in Motion is trading above $135 on Friday when the options expire, my shares will be called, and I’ll get $135 per share (for a profit of $1.75), plus I get to keep the $3.35 premium I brought in. That’s a total profit of $5.10 on my $133.25 investment, or 3.8%, which over a period of two weeks is a nice rate of return. If RIM isn’t above $135, I still get to keep the premium, and I can either cover again next month, or sell, or whatever. I still like the stock over the medium term, so I think the strategy makes sense.

Obviously I have liquidated some of my other holdings, but I only view that as a short term phenomenon. I plan to put in below market buy orders to pick up shares on weakness over the summer months, which are traditionally very weak months.

“Sell in May and go away” is an old saying, but it’s often true, so I will feel much safer to be in cash over the summer, not fully invested.

The Dines Letter

Mr. Dines issued both an Interim Warning Bulletin and and issue of The Dines Letter this week. The IWB was issued on Thursday, and it said “buy”, which was repeated in the newsletter on Friday. (Which of course begs the question: what’s the point of issuing an IWB one day before the newsletter; he does that quite often. It provides no additional value, but I guess it’s a way to justify to his subscribers “look at all the IWB’s I issued this year”).

The front page headline was “A Dip, Then Spring Rally to Continue?” I love the question mark at the end. It appears that he is saying the market will go down, then up, but he’s not sure, it could be up then down, hence the question mark.

(Note: See that I used the same trick in the title for this week’s posting? With the question mark at the end? Cool, eh?)???

He seems quite pleased with the fact that the lows made by the Dow in January were retested in March but not broken, therefore we are probably in a bull market. Unless the lows are broken again. There were lots of new highs and new lows on the NYSE on Friday, so it may be premature to call this a bull market quite yet, but who knows.

The brilliance of saying that a bull market has started is that it’s a meaningless prediction. You can’t invest in a bull market. You can only invest in stocks, and the only Dines recommended stock that is part of the Dow is down 12% since he said to buy it in December. But that’s fine; even though we won’t make any money from this advice, at least six months from now he’ll be able to say that “he called a lucky shot”, “right at the very bottom”, etc., etc.


Of more interest to me are the comments of Merv who has turned bullish on the uranium stocks. Does this mean we should start buying? I’m not so sure. Here’s a chart of PDN.TO – Paladin Resources Limited, a stock that gained over 9% on Friday, and over 23% on the week:


I still see a down trend; the 50 day moving average is a resistance point, and the RSI is now getting high. This one could run for a few more days, but if I owned it, which I don’t, I’d be selling on this rally, not buying, and then I’d place buy orders back around the $4 mark to pick it up on market weakness.

The charts of other uranium stocks, like CCO.TO – Cameco Corp. and UUU.TO – Uranium One Inc. look similar, so I’m not convinced now is the time to buy. I’m not saying this is a “Sucker’s Rally”, but I’m not ready to bet the farm just yet.

As of last week I was down down 17.3% on the year. We had a good week, so now I’m only down 13.9% on the year. If I can pick up 3 points a week I can be break even by the end of June. Yippy.

The strongest performer on the week was DML.TO – Denison Mines Corp., up over 15% on the week. One of the worst performers was UUU.TO – Uranium One Inc.down 1%. Call me cynical, but how can we be in a new uranium bull market if only some of the stocks are participating in the rally?

So, my plan from here remains the same as stated here last week. I would like to rebuild my cash reserves for the summer. Last week I was 4% in cash. Today I’m 17% in cash, and I expect that to increase to over 20% this week, since I want cash for the summer shopping season in July and August.

Also, I won’t be chasing anything. Some below market stink bids when I resume buying will be the way to go.

Many of you have had great comments this week over on the Buy High Sell Higher Forum. We seem to be both frustrated and happy. Keep commenting; I assume this week will also be eventful.

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