Here is a chart of DML.TO – Denison Mines Corp. from 2004 through 2008; short term peaks happened on March 26, 2004, April 1, 2005, March 3, 2006, May 11, 2007, and June 6, 2008 (click on the chart to see a bigger version).

I interpret from this that the spring peak can happen anywhere from the beginning of March through to the first week of June, with drops thereafter. So, sell in May is a good, but imprecise, rule. “Sell in spring” would be more accurate, but it’s such a general rule that it may be of no use. A further caveat is that I only pulled up Denison’s chart; other stocks may yield different results, so I encourage you to do your own research. (I did pull up a few other charts in other industries, and a quick look indicates that they all do follow a pattern similar to Denison’s, although not identical).

Since we have had a good run over the last month or two, my bias today is to take profits. If the market continues upward, at least I took profits. If it falls, I am even happier I took profits. So, on Friday I sold all of my remaining shares of Denison, at a very nice profit (more than a double).

I have also reduced my exposure on gold shares, and will start selling my silver shares as well (also at a profit). My plan is to raise cash, probably up to 85% of my portfolio.

Yes, I know, you are all thinking that I’m nuts. We hit the bottom last November, everything is on the upswing, it’s all good from here, and I’m selling. What an idiot I am.

Maybe.

Or, maybe, we need to retest the lows again before we can truly say we are in a new bull market. Perhaps the bankruptcy of Chrysler this week is not a sign of good things to come. Unemployment remains high. Foreclosures are still very high. Government spending is monstrous. Those are not generally leading indicators of a bull market.

Since the late spring and summer months tend to be weak, being in cash is prudent, so that’s what I’m doing. Now, let’s talk books.

JDH’s Book Report – Outliers

Remember when you were in school you had to read books and do book reports?

Today, I present to you the first ever JDH book report. I’m not much of a book reader, so don’t worry, this won’t be a weekly feature.

I would, however, like to comment on Outliers, “The Story of Success” by Malcolm Gladwell. Mr. Gladwell is a staff writer for The New Yorker. More impressive, his father is a professor at the University of Waterloo, so Malcolm spent some of his formative years in the sleepy town of Elmira, Ontario, a short drive from where I spend many days at my real job.

The premise of his book, if I may summarize, is that to be successful you need to be smart, hard working, and lucky.

We all agree with the first two attributes: smart and hard working. But luck?

Yes, luck is a key component to success. He starts the book with a typically Canadian example: the vast majority of professional hockey players were born in January, February or March. Why? Because when five year old kids are learning to skate, the older kids (born early in the year) do better. Being a few months older at age five makes a big difference. Those “better” kids get put on the “rep” team, that practices more and plays more games, so those kids get even better. And so it goes, throughout their formative years. More practice, so they get even better, so they get picked for the better teams, so they get better.

Of course those kids must still work hard and have some basic talent, but it is a fact that being born early in the year helps.

Mr. Gladwell gives numerous other similar examples. Bill Gates went to one of the few high schools in the world in the late 1960′s that actually had a computer terminal. He was able to get time on that terminal learning programming. He worked extremely hard, well into the night, and he was obviously very smart. But if he had not had access to that computer terminal, he would not have founded Microsoft.

Hard work and brains are important, but luck is equally important.

(For more, go to Amazon and buy Outliers: The Story of Success, or borrow it from the library; it’s a quick read).

So, why am I doing book reviews? Do I honestly think you will go to Amazon and buy a $15 book so I can earn 20 cents in commissions?

No, I don’t.

But I do think luck is important. My portfolio was up 52% in 2005, and 94% in 2006. I assumed I was a genius. I had figured out the stock market. I would retire by 2010 and live a life of leisure. Then came 2007, when I lost 33%, and 2008 when I dropped a further 45%. I ended 2008 back where I started 2005.

It turns out I was not a genius. I was lucky. If you bought stocks in the uranium sector in 2005 and 2006, you made money. If you put a list of all uranium stocks on a dart board and picked stocks to buy by throwing darts, you made money. Yes, I did research and analyzed stocks and was in the right sector at the right time, but then I was lucky, just like Malcolm Gladwell’s hockey players and Bill Gates.

If I truly was brilliant I would have continued to earn huge returns in 2007 and 2008, instead of giving it all back. Had the fundamentals for uranium changed? Was the energy crisis solved in 2007, such that nuclear power will no longer be necessary? Is global warming done? No, but markets get inflated and deflated, and if you are buying during the inflation phase you make money, and if you are holding during the inevitable sell off, you lose.

Let me say that again: during a bull market, stocks go up. Pick any stock, and it will, on average, go up. If you pick the leading industry group (like uraniums in 2006), virtually any stock in that industry will go up. You have to be smart to get the industry right, but you have to be lucky to be buying during a bull market.

The opposite is also true. You can be the best technical analyst in the world, and you can pick the stock with the best RSI or MACD or stochastics, and you can buy it, and if a bear market starts, you will get killed.

So what can we do? Should we just give up, and hope for luck? Is it pointless to do research and technical analysis?

No, I think hard work is very important. Understanding the markets are very important. But don’t believe your own press clippings. Don’t fool yourself into believing that just because you bought a stock and it went up that you are automatically a brilliant stock picker. You may be, or you may be lucky.

I met with a number of people this week who told me exactly the same story: They bought a bigger house two or three years ago, with very little money down. All was good until they lost their job, or their hours got cut back at work. Now if they sell their house and pay the real estate commissions, legal fees and penalties to break the mortgage, and pay off the mortgage, they will lose $20,000. Or $50,000. They thought buying “up” was a wise financial move because every knows that house prices always go up, and now they are on the verge of bankruptcy because house prices have crashed.

You are a brilliant real estate speculator if you buy at the start of a bull market, and you risk personal bankruptcy if you buy at the peak. Luck is funny that way.

The Toronto Star ran a story this morning titled Generation Why Me? that talks about young people who thought they were doing the right thing by buying a home and getting an education, but with rising youth unemployment they are now losing their homes. They are depressed thinking about the future. They are not out there buying goods and services, they are not driving the economy forward, because they can’t. People cutting back is not a recipe for future growth.

As I watch people walk away from their homes, and as I watch continued increases in unemployment, and as I watch marriages deteriorate due to financial pressures, I am not optimistic about the short term health of the North American economy. Government spending will not help; it will crush us in the medium term. And swine flu, or whatever they are telling us to call it now, probably won’t help either.

As I stare at the chart of the Dow, I do not see a pretty picture. Let’s not forget the “bottom” of 7,552 on November 20, 2008 was followed by another “bottom” of 6,547 on March 9, 2009. Is that the last bottom?

We all thought happy days were here again when the Dow jumped from the “bottom” of 7,552 on November 20, 2008 to 8,934 on December 8, 2008, a gain of over 18%, and the start of a new bull market. By January 2 we were over 9,000. We all know what happened from there. We crashed, again.

Luck in stock market investing starts with guessing whether or not we are in a bull or bear market. In a bear market virtually everything goes down, notwithstanding some temporary bear market bounces. I believe we remain in a bear market. Until we stop making new lows, we are in a bear market.

And that’s why I’m moving even more of my portfolio into cash. The long term charts show conclusively that we are in a bear market. The seasonality of “sell in May and go away” leads me to believe that selling now is prudent. The horrible fundamentals of the economy tell me that there is more bad news to come.

Of course I could be wrong. It is accepted wisdom that the stock market is a leading indicator. The stock market today tells us what the economy will be doing six months from now, so the theory goes. The market has done great for the last six weeks, so the economy will be doing great by the end of the year. Or, we are in a dead cat bounce, and it won’t. I’m betting on the latter.

I’m not ready to start shorting anything yet. If I’m wrong and the market picks up, I leave profits on the table. If I short and the market picks up, I lose money, so for now I will watch and observe.

As always, thanks for reading, and feel free to comment on whether or not you think I’m crazy over on the Buy High Sell Higher Forum. See you next week.

In other good news, the world did not end this week! Those of you who have followed the writings of Martin Armstrong will know that this was the week he predicted an intermediate top in the markets. Of course he may be correct; this week may indeed, in hindsight, mark an intermediate top, and the markets may fall to new lows from here. But, the markets didn’t crash this week, so let’s take comfort in that.

(As I posted on the Forum this week, for those who don’t know, Martin Armstrong eventually pleaded guilty and is currently serving time in jail for fraud (so we know he’s credible  . Here is a summary of Martin Armstrong’s predictions, and here’s the link to his long essay. You can judge for yourself whether or not he’s credible). The Dow and the S&P were relatively flat this week, with the Dow and the S&P down less than 1%, so on the broad averages it was an uneventful week.

Last week in my comments on gold I said:

Where is gold heading? My gut tells me we are nearing a near term bottom.

If you draw an uptrend line from the lows of November 2008, it hits where we are today. Coincidence? Perhaps. But the 200 Day Moving Average is $860.37, and gold closed on Friday at $869.10, so it’s possible that both the uptrend line and the 200 DMA are support levels.

Looking at the three month chart the $860 level also looks like support, and the RSI is as low as it’s been in months, so again, a bottom could be here.

If gold breaks below $850 this week, I will assume that we are going for a big fall. If not, we could be at a decent support level, so now may be a good buy point (although I will wait and see before committing any further cash).

Gold closed the week at $913, so all that stuff I said last week: yup, that was pretty much it. We did not break the $850 level, so the likely direction is up from here.

Not surprisingly, gold stocks did very well this week. Here is the performance this week in some of my gold stock holdings:

K.TO – Kinross Gold Corp. up 16.62%

ABX.TO – Barrick Gold Corp. up 12.29%

G.TO – Goldcorp Inc. up 10.02%

AEM.TO – Agnico-Eagle Mines Ltd. up 9.88%

Kinross was the best performer on the week, which isn’t surprising given my pessimistic comments from last week:

For example, K.TO – Kinross Gold Corp. closed the week at $16.73, a big drop from the $24 level we hit back in January, February and March. The RSI at 31.39 is also very low. Is this a breakdown with a big fall ahead, or is this a “breakdown” that was artificial, like we saw back in November, that was in hindsight a fantastic buying opportunity?

I won’t bore you with the charts, but the charts of AEM.TO – Agnico-Eagle Mines Ltd. and G.TO – Goldcorp Inc. and other gold stocks look remarkably similar. Gold itself has not broken through it’s base, but the gold stocks have, which either means they have over-corrected and are due for a bounce, or bad things are coming. In fact, even the silver stocks look the same (SLW.TO – Silver Wheaton Corp. and PAA.TO – Pan American Silver Corp., for example).

Again, it appears to me we are at a significant decision point. If these levels in gold and silver hold, we may be at a near term bottom. If they don’t, we could easily see $800 per ounce gold; we will have a good idea this week, and a very good idea before the end of the month.

So, do we have a better idea now?

I don’t know. Obviously all the gold stocks had a bounce this week, and obviously Kinross did not fall anywhere near to it’s November lows, so a bottom may be in. Historically an RSI passing over the 50 level is a good buy point. But, the stock has come a long way in a week, and the downtrend that started in February remains in place, so I’m undecided on this one. I therefore think the best option is to “hold”, although I may put in some sell orders at $22 to lock in some of the profits.

Silver stocks were also strong on the week:

PAA.TO – Pan American Silver Corp. up 10.87%

SLW.TO – Silver Wheaton Corp. up 9.21%

SSO.TO – Silver Standard Resources, Inc. up 7.55%

But what was the best performer on the week in my portfolio? DML.TO – Denison Mines Corp. up 28.37% on the week, including over a 9% gain on Friday. Denison was under a $1 earlier this month; I bought it for $1.11, and it looks like it’s headed for $2 before it gets even close to the down trend line.

A double in a month is a huge run, which I can’t believe is sustainable, so my sell order for half my holdings will be in at $2. If it keeps running, I leave some money on the table but that’s fine, I like cash in my pocket.

Beyond that, I still continue to maintain a bearish perspective. I still believe the economy is not even close to being out of the woods yet. The commercial real estate crisis and the credit card crisis is just beginning, and the problems in the auto sector are obviously not yet solved. Cash is king, and I want lots of it on hand if we see another big drop, which is what I expect. My portfolio is up slightly on the year, and I’d like to keep it that way.

The weather will great this weekend, so outside I go, thanks for reading, and please continue to post your thoughts on the Buy High Sell Higher Forum; see you next week.

Huh?

As many of you may know, dissonance is a lack of agreement. In particular, it is an inconsistency between the beliefs one holds or between one’s actions and one’s beliefs. Dissonance is not good, because it means you are out of sync with yourself, and that’s bound to cause problems. If you are out of sync with your ideas or cognitions, you’ve got a real problem.

Thus, cognitive dissonance is that uncomfortable feeling caused by attempting to believe and follow two contradictory ideas or cognitions at the same time. We humans do not like to be out of sync. We have a strong internal drive to reduce dissonance by changing our attitudes, beliefs, and behaviours, or by justifying or rationalizing our attitudes, beliefs, and behaviours. (You can read a nice summary of the original experiments about cognitive dissonance here ).

Let me illustrate with two charts. Here is a chart of the Dow over the last two months:

What do you think? You probably think that the Dow is in an uptrend. It looks good. It looks like a bull market. You probably want to be a buyer. Now, try this chart:

This chart of the Dow over the last three years does not look nearly as good. There appear to be a successive series of down trends in place. We appear to be a bear market, that has had a bounce over the last few weeks. However, the last of the down trend lines will not be broken until the Dow is well above 11,000, so we appear to be a in a bear market.

Here’s the cognitive dissonance part: What I believe will effect what I see. As I have stated many times before, I don’t believe the depression is over. I believe that high unemployment, a decimated manufacturing sector in North America, and massive government spending will take more than a few months to correct. A bear market bounce is not uncommon, but an end to the depression is not here yet. Therefore, when I see the short term chart of the Dow, I see a bounce, not the start of a new bull market. I use the “facts” to rationalize my own beliefs. If you believe we are in a new bull market, your interpretation of the “facts” will be different than mine.

Let me give you another example of cognitive dissonance.

Monkeys and Jelly Beans

A monkey likes three colours of jelly beans: blue, red and green. He likes the three colours equally. He is given two jelly beans to choose from: a blue and a red. He chooses the blue one.

With the red one still in front of him, he is now also given a green one, so now he can choose from a red one and a green one. Remember, we know he likes all three colours equally, so it would appear that there is an equal chance that he will either pick the red one or the green one. So which one does he pick?

Most of the time the monkey will pick the green one. Why?

Because once he rejects the red jelly bean, it becomes less desirable. So, given a choice between the “new” green one and the “old” red one that he already rejected, he will pick the green jelly bean. He’s got a good old case of cognitive dissonance, and he can’t reconcile in his mind picking a jelly bean he already rejected, so he picks the new one, even though both jelly beans would be equally good choices. (If you want to play amateur shrink, tune in to the Psych Files podcast, with which I have no affiliation).

Now most of my readers are not monkeys, and I myself don’t like jelly beans, so why do I raise this example?

Because sometimes we sell a stock, and never want to look at it again. Once we “reject” something by selling it, it’s hard to get over our cognitive dissonance and buy it again. We simply are not wired that way.

Uranium Stocks and Cognitive Dissonance

When I started this blog back in 2006, the first stocks we discussed were uranium stocks. Our big winners in 2006 were uranium stocks. I made a lot of money in uranium stocks, as did many of you. Then came 2007. And 2008. We stopped making money in uranium stocks. In fact, we lost a lot of what we made. So now, we don’t want to own uranium stocks.

In fact, to buy uranium stocks after selling them would mean we are buying something we rejected, which sets up a bad case of cognitive dissonance.

(For those of you who are into technical analysis, what role does cognitive dissonance play in resistance levels? I suspect that “overhead resistance” is another way of saying that when a stock hits it’s peak and then falls, we can’t bring ourselves to own it again until it surpasses it’s previous peak, thereby proving us right to own it, thereby eliminating the dissonance).

Here’s the chart of DML.TO – Denison Mines Corp., a senior uranium company, over the last month:

Denison appears to have bottomed, and is on the road to recovery. Of course the three year chart tells a different story:

A quick review of Merv’s Uranium Index shows that at the moment Merv’s indicators are bullish.

So here we potentially have a classic case of cognitive dissonance. On the one hand, I got burned in uranium (not literally; getting burned with uranium would be fatal; I’m talking about stocks here, people), and so I don’t want to own it again. On the other hand, uranium stocks may have bottomed, Merv’s numbers are bullish, and the need for nuclear power hasn’t gone away. In fact, it is quite likely that the Obama administration will realize that nuclear is the only logical way to wean us off foreign energy, which is the only way to ultimately preserve our national security.

The key for all wise investors is to separate their “feelings” from the “facts”, and act accordingly. My take on uranium is this: there are a lot of investors, like me, who got caught in the uranium bubble and didn’t exit soon enough, so for us, we won’t be quick to rejoin the party. We are the overhead resistance. However, the long term fundamentals are just as good as they were back in 2006, probably better. Therefore uranium stocks should have a place in my portfolio.

But, once this bear market rally burns itself out in May, or June, and the market retreats to retest it’s lows, all stocks will get carried down with it, including uranium stocks. Therefore my plan is to place stink bids and accumulate on days of extreme weakness. For Denison a stink bid of 85 cents makes sense.

Even more importantly I will hold a lot of cash. I could try to play the bounce, but I’m not nimble enough to do that. I don’t want to get caught on a big down day, so I will hold my golds and silvers, and yes I will hold some shares of Denison, but the biggest portion of my portfolio will be cash, because when the market retests it’s lows, cash will be king.

I’m an optimist, and I want to buy, but the facts tell me otherwise, so I have to try extra hard to separate my feelings from the facts. Dissonance ain’t pretty, but dis is da way dat it is.

Thanks, and next week I promise to avoid the psychobabble, if you promise to analyze why you buy what you buy; all intelligent thoughts welcome on the Buy High Sell Higher Forum; see you next week, and Happy Easter.

I guess the highlight of the week was the return of Punter on the Buy High Sell Higher Forum on July 29. Apparently Punter had a great vacation in Maui, and said that he still sees a capitulation, and therefore is keeping cash and buying selectively. (You can read the post here).

Many of you chimed in with your thoughts, and most are in agreement that there will be many bumps ahead.

Some of the bumps are caused by market manipulation, where short sellers drive the price of a stock down, then cover by participating in a private placement at lower levels, so that they can then drive the price back up. Another common tactic is to sell a stock at the close to drive the price down, which may then trigger technical indicators causing the rest of us to sell. (Here’s the discussion from back in June we had on this topic on the Forum).

My take?: it’s the summer doldrums. Just like last summer, the volume is low, there are no new buyers, and if there is little buying, prices fall.

On the weakness this week I increased my holdings in K.TO – Kinross Gold Corp., AEM.TO – Agnico-Eagle Mines Ltd., and G.TO – Goldcorp Inc., and I bought some DML.TO – Denison Mines Corp.

Did I buy too early? Who knows. On the Forum Depleted posted a Denison chart that shows we are at a critical juncture here; if the lows don’t hold, we will probably see the same type of capitulation we saw last August.

My plan? Monday is a holiday in Ontario, so the Toronto markets will be closed, so nothing will happen on Monday. If we don’t see strength shortly I may assume that I did in fact jump in too early, and I will start selling again and raising cash.

However, it’s also important not to worry about day to day, or even month to month fluctuations. Gold will rise again, and it will be sooner rather than later.

The U.S. government continues to run massive deficits, and even the resource rich Canadian government slipped into the red for the first two months of this year. Interest rates will have to rise to keep foreign money piling in; the dollar will continue to be devalued, and therefore by the end of this year I fully expect gold to be much higher than it is today.

And that’s it.

It’s the summer. Let’s not over-think it, but if you do have thoughts, feel free to post them on the Buy High Sell Higher Forum.

News Flash: Ice may melt at the North Pole this summer.

News Flash: Scientists find water and key elements of life on Mars.

And that’s just today’s news. What does it all mean?

First, we are all idiots. Why should any of us care if some 49 year old entertainer is getting a divorce from her latest husband? I don’t, but I’m sure it will be one of the top news story on the “news” shows this weekend.

Should we be worried about ice melting at the North Pole this summer? I live in Canada, but here in Southern Ontario I’m actually farther away from the North Pole than are residents of Detroit, so no, I’m not going to spend a lot of time worrying about the lack of ice up north. Yes, melting ice may raise water levels down here, but it hasn’t happened yet. I don’t think flooding in Iowa is caused by ice melting in the North Pole; if it was, Canada would already be under water.

(If I may go on a tangent for a moment, I have no doubt that human activity contributes to climate change, but I suspect it’s only a very small contributor. There have been ice ages and global warmings many times in the earth’s history. Our unusual weather may be linked in part to low sunspot activity, or a host of other causes. We’ll never really know, since the world’s brain power is more worried about Madonna than the sun).

Life of Mars? Probably not, but I’m most intrigued by that story. I’ll probably never go to Mars, so I’m not interested in space travel. (With the price of gas, I’m not interested in any kind of motorized transport at the moment). However, I am interested in the human ingenuity that got a space craft to Mars, because it is that same human brain power that will ultimately solve our energy, and global warming problems.

Too bad we don’t have more human ingenuity when it comes to the news.

Every weekday morning I roll out of bed sometime between 5:30 and 6:00 am and head down to my basement work-out room. Monday I lifted weights (upper body); Tuesday, more weights (lower body); Wednesday, interval training on the elliptical machine (2 minutes at maximum heart rate, followed by a minute of rest, for five sets, plus warm up and cool down); Thursday, cardio on the treadmill; Friday, back to the upper body. Saturday, I’ll go bike riding with my boys, or shoot hoops, or whatever; the early morning, before the rest of the family wakes up, is reserved for writing this commentary.

Each morning while I work out I watch CNBC.

CNBC may not be reporting on the state of Madonna’s marriage, but I find the coverage equally insipid most of the time.

For the record, I quite enjoy watching the morning crew on Squawk Box: Joe Kernen, Becky Quick and Carl Quintanilla are informed and set the right tone each morning. Their guests, on the other hand, are not always on the ball.

There was some guy on Friday morning who kept insisting that now was not the time to sell; “stay the course” he kept saying. Actually the time to sell the Dow was 20% ago, but it seems that most of the guests want everyone to keep buying forever, and never sell, which is of course a mathematical impossibility.

And that, dear readers, is the problem: Too much noise.

We get bombarded from all sides with largely irrelevant information (like what’s happening with Madonna, or what some guy on CNBC thinks), and we miss the big picture.

To review, the big picture is as follows:

First, the economy is in bad shape. There are around a million homes in the U.S. under foreclosure at the moment, and that’s not good. Gasoline prices are at an all time high, and that’s not good for the consumer either. We will start to see a dramatic shift as people move from the suburbs closer to the city to cut down on their commuting costs. That may help real estate prices in the city, but will kill them in the suburbs, further squeezing the real estate sector.

Second, the U.S. dollar is in bad shape. The Americans have been printing money for years know to pay for what we will look back on as an ill-conceived and poorly executed war. This spring the U.S. government printed even more money to send to their citizens to forestall a recession. Unfortunately printing money only defers the day of reckoning, it doesn’t solve your problems. Foreigners now realize that a dollar is simply a worthless paper promise, and they don’t want them anymore. In the short term that may help exports, but in the medium and long term trying to buy goods with worthless paper is a mug’s game; it won’t work.

Third, energy costs are sky-rocketing. I assume that those “evil speculators” have some roll in driving the price higher, based on the law of supply and demand (if they are buying and hoarding, that would increase the price). However I think it’s obvious that the true reason for most of the increase is supply and demand. China and India are only now starting to buy cars in significant numbers, and when 2 billion people start buying gas, that will drive the price up. Combine that with the fact that the U.S. hasn’t built any new refineries in decades, and refuses to allow more oil exploration, and the supply/demand equation will only worsen.

(China will soon be drilling off the coast of Cuba, which is in fact also off the cost of Florida, so drilling will be happening whether the U.S. wants it or not. Too bad that wealth won’t accrue to U.S. citizens. It appears that the new Democratic government to be elected this November will focus on “renewable” energy, so let’s hope they figure out a way to make wind power drive your car).

Fourth, Madonna is getting divorced.

So what are we to do?

First, don’t buy real estate in the suburbs.

Second, don’t hold U.S. dollars, or U.S. dollar denominated assets. I trade in Canada, so I’m slightly more protected, although ultimately the Canadian dollar will prove to also be worthless paper.

Third, start looking at ways to drastically reduce your energy consumption. Combine your shopping trips so you’re not driving as much. Work from home when possible. Turn the air conditioning up, or off. Buy a programmable thermostat. Put a windmill on your car.

Fourth, if you have a hankering for 49 year old, multi-times married, faded pop-stars, give her a call. (I don’t, and won’t).

Oh yeah, one more thing. If the dollar is crashing and you want to own something that will increase in value, buy gold, and gold stocks.

In fact, this week, my large gold stocks were big winners, with K.TO – Kinross Gold Corp. up 18.1%, G.TO – Goldcorp Inc., and AEM.TO – Agnico-Eagle Mines Ltd. both up 12.9%.

Silver stocks also did well, with PAA.TO – Pan American Silver Corp. up 13.2%, and FR.TO – First Majestic Silver Corp. up 9.6%, and SLM.TO – Silver Wheaton Corp. up 8.4% on the week.

But wait, gold and silver were not the big winners this week. The big winner was:

DML.TO – Denison Mines Corp. at 22.4%! Congratulations Denison. The next biggest winner was UUU.TO – Uranium One Inc.up 18.7%.

Yes, you read that correctly; the big winners this week were uranium producer stocks. How long has it been since we have been able to say that?

Whether or not this is a trend, only time will tell. Denison has risen to it’s 200 day moving average, which has proven to be a resistance point in the past, so a slight pullback from these levels is quite possible.

Uranium One is approaching the very critical $5 resistance level, where it has failed twice before, so if it can get through $5, it will be onward and upward from here.

My strategy remains the same as it’s been for the last two months.

I will decide what stocks I want to own (from the list in the Buy-High-Sell-Higher.com Target Portfolio), and I will place stink bids at what I believe are appropriate buy points. I won’t chase a stock. The goal is to have a full portfolio by the end of the summer. I’m currently still holding 27% in cash, the same as last week, so I have a long way to go before I’m fully invested.

I won’t sit around and watch. During the first week of June I was buying the senior gold stocks. This week I will sell those shares I bought earlier this month. They are looking overbought, given the big increases of this week. I will still hold my core positions, and look to buy back in over the next few weeks as prices ease back.

As for the uranium stocks, I may start raising my stink bids slightly so I can continue to accumulate.

This week I did buy two stocks, as they got down to acceptable buy levels:

JNN.V – JNR Resources Inc., a uranium play, and WND.V – Western Wind Energy Corp. my first ever “Wind” stock. Incidentally, Western Wind Energy first came to my attention through a posting on the Buy High Sell Higher Forum, so thanks to you for bringing it to my attention. It was trading as high as $4.25, and it looked toppy to me, so I didn’t chase it. I placed my stink bid around the 50 day moving average ($3), and this week it got filled. If it falls further I’ll buy more, since long term it looks like a keeper.

The summer will be choppy, so I’ll use the down days to buy, and the up days to sell, and hopefully we have many more weeks like this one.

As always, thanks for reading, and feel free to post your thoughts on the Buy High Sell Higher Forum.

Not much happened this week. Some stocks were up, some stocks were down, but overall my portfolio remained about where it was last week.

The biggest winners were my biggest gold stocks, lead by K.TO – Kinross Gold Corp. up 6.7%. This is an interesting one because last week Kinross was my second biggest loser, down 8.5% The next biggest winner was G.TO – Goldcorp Inc., up 4.9%. Since I had stink bids placed on both stocks, I have been purchasing over the last week, so I’m glad to see them increasing.

Does this mean that gold is due to start a new run? Perhaps, but perhaps not.

We are clearly still in a trading range that started with a top in mid April, followed by a bottom at the start of May. I’m encouraged that gold is now above it’s 50 day moving average, but it’s done that three times before in the last two months, stayed there for a few days, then fell. If I was a betting man I’d guess that we will see $880 before we see $940. With that in mind, I’ll probably play the roll of day trader.

Specifically, the extra shares of Kinross and Goldcorp, and AEM.TO – Agnico-Eagle Mines Ltd. that I’ve picked up over the last two weeks will probably be listed for sale at prices above what I paid. If I get it, great. If not, that’s fine too; these are long terms holds for me, so I don’t mind hanging in there with them.

Interestingly, while the gold stocks were up, the silver stocks were down.

My worst performer on the week was SVM.TO – Silvercorp Metals Inc., down a disappointing 9.7%. I’m not going to panic on this one; they announced good but not great drilling (and tunneling) results on June 18, so some investors probably took some money off the table. I’m sitting on a big loss on this one, but I may pick up some more at these levels over the next few weeks.

My next biggest loser was DML.TO – Denison Mines Corp., down 8.2% on the week. While I don’t like to see stocks I own going down, I have been a buyer in the last two weeks, and I’ll be placing stink bids at around the $6.50 level to complete the accumulation of my position.

Going back to the winners again, my next biggest winner was the only non-Canadian exchange traded stock I own, RSW – Rydex Inverse 2X S&P ETF, which is an Exchange Traded Fund that goes up when the S&P goes down. (In theory it tracks the S&P 2 times the inverse, so if the S&P goes down 1%, RSW should go up 2%). This is my insurance stock, to give me protection against a stock market correction or crash. So far, it’s proved to be a good investment.

So, here’s my point (the same point I have been making for the last few weeks):

We are in the summer doldrums. The big guys are starting their summer vacations, and the golf season is in full swing (except for Tiger, but that’s another story). Trading volumes will be lower, so unless there is important news, stocks will drift lower. It’s not the time to panic. Now is not the time to watch your stocks every single day and worry about price swings.

Now is the time to decide what stocks you want to own, and place your stink bids well below market value to begin accumulating. You can see the stink bid list here on the Buy-High-Sell-Higher.com Target Portfolio. The goal is to have a full portfolio by the end of the summer. I’m currently still holding 27% in cash, so I have a long way to go before I’m fully invested.

I expect choppy waters over the next two months, so if some stocks, like the golds mentioned above, go on a short run, I may take some quick profits.

Long term, uranium is going higher, because it’s our only hope for a stable, clean energy source.

In the medium term gold is going much higher, as the flight away from paper currency continues.

That means that I want to own gold, silver, and uranium stocks, so while they are on sale, I will be buying.

Volume also drops on the Forum over the summer, but if you have any thoughts, feel free to post them on the Buy High Sell Higher Forum, and thanks for reading and contributing.

As for the markets this week, well, they were down. Almost everything I owned was down this week. The worst performers were the silvers: SVM.TO – Silvercorp Metals Inc., down 13.8 %, and FVI.V – Fortuna Silver Mines Inc., down 12%.

Next on the down list were the golds, led by K.TO – Kinross Gold Corp. down 8.5%.

Am I surprised? No, not at all. For the last month I have been saying that I expect the typical summer swoon, and that’s exactly what’s been happening. A month ago I raised cash, and now, on this weakness, I am beginning to deploy that cash. I have made a list of what I want to own, and I have placed my stink bids on those stocks. On weak days, if they fall to my buy levels, my purchase orders are automatically triggered. I don’t need to watch every day; I just, to quote a famous T.V. pitchman, “set it, and forget it”.

You can see the stink bid list here on the Buy-High-Sell-Higher.com Target Portfolio.

This week the following stink bids were triggered:

AXR.TO – Alexco Resources Corp. at $3.50

AEM.TO – Agnico-Eagle Mines Ltd. at $67.19;

DML.TO – Denison Mines Corp. at 7.64;

K.TO – Kinross Gold Corp. at $19.17

G.TO – Goldcorp Inc. at $39.97 and

UUU.TO – Uranium One Inc. at $4.50

Did I buy too early? Probably, but again, I’m not worried, because I’m not buying my full expected position at these levels. I’m still holding 37% in cash, in anticipation of even better bargains over the next month or two.

My approach next week will be the same: I’ll evaluate my portfolio, determine what stocks I want to own that I don’t yet own, and look at their charts to see where their corrections will likely end. That’s the level where I’ll place my stink bids. If they get filled, great. If not, when the stink bids expire, I’ll place them again. I normally place my stink bids good for a period of two weeks, so every two weeks I can re-evaluate their levels, and adjust up or down as necessary.

The key here is that I am not chasing anything. I will be patient. If it means I go a week or two without making a trade, fine. Many stocks are in trading ranges, and what goes up, comes back down, which is where I’ll buy.

For example, here is a one year chart of G.TO – Goldcorp Inc.:

As you can see, we are in both a short term downtrend and a long term up trend; I’m betting that it will resolve to the upside, so I’m satisfied to slowly build my position on days of weakness. Here’s a short term chart

As you can see over the last month, $39 is very solid support, so I think anything under $40 is a good level for a stink bid (which of course is why I was buying at $39.97 this week). I have accumulated close to my full Goldcorp position, so this week I’ll put in a stink bid for a few more shares at $39 to round out my holdings, although it’s possible that it won’t get filled.

Obviously I have re-entered the uranium market with AXR.TO – Alexco Resources Corp. , DML.TO – Denison Mines Corp. and UUU.TO – Uranium One Inc. , albeit with relatively small positions. I’ll add to them over time with more stink bids. Nuclear fuel is our only hope, so I expect great things over the medium to long term, and at these depressed levels I full expect to see some merger activity over the next six months as well.

Politics

Switching gears, I’d like to make some brief comments on the political discussion that erupted this week over on the Buy High Sell Higher Forum. The discussion was focused on the effect that Obama or McCain as President may have on the markets.

For the record, I’m a Canadian, so I don’t get a vote in this November’s U.S. election, and if I did, I think it would be a difficult choice.

I consider myself to politically be a pragmatist, so I don’t fit into the “conservative” or “liberal” label. I acknowledge that government does play a role in our society. I don’t really want traffic laws privatized, and I think the armed forces are best run by the government, not by private enterprise. I think the government should run the police and the justice system.

Beyond that, it appears to me that government just gets in the way.

In Canada we have “free” health care for all. If I break my leg, the government run health care system will fix it, at no charge to me. In theory this is great, because in Canada your bank balance does not determine whether or not you can get your broken leg fixed.

In practice, resources are scarce, and they must be allocated somehow. In a purely capitalist system, money is used to allocate resources. Whoever has the most money can buy the most resources. In the Canadian health care system, resources are allocated by a waiting list. If I need heart surgery, I may need to wait six months or a year until my situation becomes so critical that I am moved to the top of the list. Of course, I might be dead by the time my turn comes up.

So what’s the solution? Only let the rich people have health care? Or let everyone die equally?

I personally believe the government should pay for all basic health care, but I should be able to choose where I get those services. If private enterprises were allowed to run hospitals, it wouldn’t take long for specialized “niche” hospitals to spring up. There would be hospitals that specialize in heart surgery, or broken bones, or cancer treatment, or whatever. The doctors and staff would get very good at those specialized services. Bloated hospital administrative costs would be reduced. The government would decide what a procedure was worth, and I could have it done anywhere.

The public pays, but the private sector delivers.

I favour the same model for education, but I digress.

Does it matter if Obama or McCain wins? I think not. The economy and stock market grew under Mr. Clinton, and hasn’t under Bush #2. Mr. Bush, the supposed conservative, has spent line a drunken sailor, racking up the highest deficits in U.S. history. He is an embarrassment to all fiscal “conservatives.”

That being said, will Obama be any better? I have no idea. He purports to be a free-trader, but has said that upon becoming President he would “call the President of Canada to re-negotiate NAFTA”.

First, we have a Prime Minister in Canada, not a President, and second, Canada is America’s largest trading partner, so “calling to re-negotiate” will take more than a simple phone call.

My gut feel is that whomever is elected will probably make matters worse, not better. Obama will swing the government to the left, which generally means more government spending and therefore a continued debasement of the dollar. McCain will presumably want to keep the war going until he “wins”, which will have the same dollar de-basing effect.

As an investor, my approach is simple in the face of continued government meddling: buy gold.

And, as we have already seen, that’s exactly what I did this week.

Enough about politics; what I think in that area really doesn’t matter. Politics is a dangerous game, and for the most part it is better to not let political feelings cloud our investment decisions.

Please continue to post your thoughts on the Buy High Sell Higher Forum, and thanks for reading and contributing.

This chart, going back three years, looks like a downtrend to me. However, it is possible that the $5.25 level does represent a break of the down trend, which could happen any time. The stock is above the 50 day moving average, but not yet above the 200 day moving average at $5.46.

The $4 level looks like strong support, but the RSI is getting high, so I think I’ll play this with a stink bid at $4.25 on the assumption that we won’t completely retest the lows. It’s gone from $4 to over $5 in less than a month, and runs like that normally require a pull back.

In other uranium stocks, DML.TO – Denison Mines Corp. is still in a long term downtrend as well.

Denison is above the 50 day moving average but not yet above the 200 day moving average, and it spiked last week, so I’m putting in stink bids at $7 for a possible pull back.

The chart of UUU.TO – Uranium One Inc. doesn’t look pretty either:

Uranium One has inched over the 50 day moving average, but the stock and the RSI have turned downward, so a stink bid at $4 is probably the way to play this, although simply doing nothing also makes sense.

Finally, JNN.V – JNR Resources Inc. also has a terrible looking chart:

I assume there is solid support at 75 cents, so if you have an itchy trigger finger the stink bid goes at 80 cents.

The price of uranium is still going down (see chart at right), so as much as I love the uranium stocks, I see no reason to be aggressively buying now.

“Sell in May and go away” is usually good advice, so holding some cash and buying at stink bid levels makes sense. I’m not chasing anything. I prefer to wait to see if we are at the bottom. Yes, I may miss some of the upside, but so what; I also limit my risk on the down side.

Time will tell where uranium stocks go from here.

Last week I said that “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.”

As suggested , I did some selling. I sold some gold stocks, including G.TO – Goldcorp Inc., ABX.TO – Barrick Gold Corp., and MFL.TO – Minefinders Corp. Ltd.

I also sold some of my uranium holdings, including DML.TO – Denison Mines Corp. and UUU.TO – Uranium One Inc.

Why did I sell? Do I think gold is headed down to $500 an ounce, and nuclear energy won’t catch on? No, quite the opposite, actually. I am long term very bullish on gold, silver and uranium. But, traditionally, the period from May through August are weak months. (Have you forgotten what happened on August 16, 2007, and the whole capitulation discussion we had last summer)? History never repeats itself exactly, but if we are going to have a weak period again this summer, I would prefer to be holding cash.

On Thursday I put in above market sell orders on most of my remaining gold holdings, and the big uptick on Friday resulted in the sales of most of my holdings ofAEM.TO – Agnico-Eagle Mines Ltd., G.TO – Goldcorp Inc. and K.TO – Kinross Gold Corp.,

But wait, you say, has JDH gone crazy? We finally have a rebound in gold stocks, and now he’s selling? Well, tell me what this chart shows you (prepared Friday morning):

As you can see, this chart of AEM.TO – Agnico-Eagle Mines Ltd. (and most of the senior gold charts look the same) shows that the uptick of the last two weeks that has carried the stock into the $70 range has carried the stock precisely to just below the down trend line that started back in March. My guess is that this down trend line will offer some resistance, as will the 50 day moving average. I therefore expect a further consolidation period, lasting anywhere from one week to two months.

Now that I have lots of cash, I plan to place below market stink bids on all of the quality stocks I want to own, and pick them up on days of market weakness. For Agnico Eagle my stink bid will probably be placed at the $60 level, right around the uptrend line going back to last summer. At that level the bull market is still intact, and I will be well positioned for the big rally in gold I expect to happen later this summer, or early in the Fall.

Could I be wrong? Of course. The recovery may have already started, and gold my hit $1,000 next week. If that happens, I guess I will be buying back the stocks I sold this week at much higher prices.

But let me ask you this question, dear readers: Do you expect that the volatility we have experienced over the last year is now over? I don’t, so even if I am wrong, there will be lots of down days to re-establish positions. Also, I find it curious that the spot price of gold went on a run on Thursday and Friday, but ended the week just below $900. I’m guessing that’s also a resistance point, so a further pullback is likely.

Finally, Monday is a holiday in Ontario. It’s the Victoria Day Holiday, in honour of the Queen’s birthday. It is more traditionally known as the “May 2-4″ weekend, since the holiday always happens on the weekend before the 24th of May. The “2-4″ is of course significant because in Canada (and I assume the U.S.) beer is shipped in cases of 24. It is tradition to buy a 2-4 and head up north for the traditional start of the summer cottage season. Those with cottages then spend from now until Thanksgiving Day weekend (which in Canada is in October) at the cottage. This explains why the markets are slower in the summer; all the rich brokers are at their cottages, enjoying the all too short Canadian summer.

(As a side note, I am no longer young and single, so my days of having a 2-4 with the boys at the cottage are long since over. I did however consume one beer with my in-laws last night, over a pizza with my in-laws, wife and kids. It will be windy in cold this weekend, so that will be the extent of the partying this weekend, I’m afraid).

My point is this (and yes, I know I said this would be a short commentary; I guess I was wrong about that): we are approaching resistance points, and the summer season has started, so I’m betting on lateral, consolidating movement for the next week to two months. The bull market in resource stocks is not dead, but it will be taking a break for a while, so I’m cashed up and ready to grab bargains as they appear.

Buy High Sell Higher

For the last two weeks I have been advocating the concept 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.. Then, in my on-going quest to find low risk ways to make a dollar, on Thursday May 8 I sold the May 135 calls against RIM. This covered write brought in $3.35 per share.

Last week a stated that 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.”

Well, guess what. RIM announced a new Blackberry, called Blackberry Bold, and by Wednesday morning RIM was trading at over $144 per share. Obviously I should not have covered my shares; if I had just held the stock I would be up over 8%. However, stocks don’t go up forever, so on Wednesday morning I covered my RIM calls (ie. I bought them back), and then sold the shares.

Here’s the math: I was playing with 400 shares, so I made $4,299 after commissions on the shares I sold, but I lost $2,509 after commissions on the options I sold and then bought back, for a net profit of $1,789, or about 3.3%. Factoring in commissions that’s about what I would have made if I had simply allowed my shares to be called (because there would have been commissions on that transaction as well).

3.3% profit for less than 1 weeks work is fine with me, so I’ll take the profits and run.

What’s next?

I assume we will be in a lateral to down market over the next few months. I plan to keep an eye on every stock on my watch list; if we have a really bad day where stocks fall and the RSI on the stock gets down into the 30 range, I’ll probably be buying. Then, I’ll place sell orders to cash in on the resulting bounce back. On Friday RIM closed at $140.31, so it appears that the consolidation is in progress. Stay tuned.

That’s it for today. Happy May 2-4 weekend, and please post your thoughts on the Buy High Sell Higher Forum. I’ll be interested to see how many of you think I was selling when I should have been buying.

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:

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:

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.

Uranium

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.