Has gold bottomed, or is their more carnage to come? My answer, of course, is that yes, gold has bottomed.

Need proof? Here’s the chart (click to enlarge):

It would appear that the area just above $1,300 is a significant support level, and now that we have spent a week above that level, we should continue to increase from here. The RSI is powering up to the 50 level, which is generally an excellent buy point, and the MACD Histograms at the bottom of the chart have just turned positive, for the first time this year, so it all looks good to me.

We haven’t seen a major follow through in the stocks, yet (although my portfolio did recover 5% this week), with one exception: IMG.TO – IAMGold Corp., a stock we haven’t discussed here since 1997 (click to enlarge the chart):

IMG formed a double top in May and October of last year, but has continued to make a series of higher highs, and this week actually made a new 52 week high.

I haven’t owned IAMGold Corp. for a a few years now, and I have no plans to buy it (presumably because I’m an idiot; a stock making a new high is exactly the kind of stock you should be buying), but it is very important for the health of the overall gold sector that stocks start making new highs. Someone has to lead the sector, and it appears that IMG is taking on that role, at least for now.

A more typical pattern can be viewed in the chart of AEM.TO – Agnico-Eagle Mines Ltd.:

Agnicio-Eagle didn’t “double top”; it made highs in May and October, and then again during the blow off in December. But the higher they rise the harder they fall, and AEM got killed along with the rest of them, dropping from $87.91 on December 6 all the way down to $66.91 on January 24, for a drop of almost 24%. Yikes. A recovery back over $72 is nothing to write home about, but again, a rally has to start somewhere, and I suspect this is where it begins.

My assumption is that the JP Morgan and the rest of the Big Boys spent the month of January hammering the price of gold and silver so they could cover as many shorts as possible, and now they will move to either the sidelines, or the long side, and ride it back up. That’s what they do: ride it down, ride it up, lather, rinse, repeat, over and over.

The weak hands get scared when it drops and sell. They then get excited when it goes up, and they buy. Since we know how volatile this market can be (and a drop of 24% on a blue chip stock in a matter of six weeks is obvious volatility), and since we are convinced that the medium and long term trend is up, the logical strategy is to hold.

I’m not on margin, and I don’t have a million dollars invested in options that will expire next week, so I can wait. I’ll be patient. I am now 87% invested, with only 13% in cash, so I’m poised for a big run up over the next few months. Perhaps I should have more cash on the sidelines, but since I have no need to sell anytime soon, I’ll stay invested and take my chances.

Thanks for reading; stay patient; see you next week.

Two week’s ago, I said that gold was looking over bought, so I sold a bunch of my holdings (at a nice profit).

Then last week, in My Strategy Backfires, I scolded myself for saying that I sold out of the gold’s too soon, as they continued their run.

Well, maybe I’m not as ignorant as I think. After peaking around $990, gold dropped big on Wednesday and Thursday, and then closed Friday at 954.87. So here, then, is my fearless prediction:

Gold is finishing it’s consolidation, and is heading upward. This week was the first try at breaking the magical $1,000 level (which happened for one day in March of this year, before correcting down to around $850. I think the next try, which could be as early as next week, will be successful, and this time it may hold.

Since the May bottom, gold peaked around $930 before falling to around $870. Then it peaked again at $950, dropped slightly to around $920, then ran to $990 (intra-day) this week before falling back to $955.

In other words, we have had a series of higher highs and lower lows; that’s an uptrend, and that’s what we want to see.

On Friday I put my money where my mouth is, and bought back all of the gold shares I sold earlier, at a lower price than I sold them, so I’m happy. Quite happy. I increased my holdings in K.TO – Kinross Gold Corp., G.TO – Goldcorp Inc. and AEM.TO – Agnico-Eagle Mines Ltd.

I was also buying silver stocks, including FVI.V – Fortuna Silver Mines Inc. and SVM.TO – Silvercorp Metals Inc.; they are both down significantly recently, so I averaged down my cost by grabbing more.

I even picked up some more UUU.TO – Uranium One Inc., since it’s a uranium producer that’s down, and I grabbed some more WND.V – Western Wind Energy Corp., and alternative energy company.

Finally, I added to my holdings of HND.TO – HB NYMEX Natural Gas Bear+ , a play on a drop in the price of natural gas. All energy stocks, including oil, have been very high recently, but now the summer is here and high prices have curbed demand, I’m placing a small bet that the price of natural gas will drop over the next month or so. This is a short term trade, with a tight stop loss, since this stock will move at twice the volatility of the underlying price of natural gas. You can track the price of natural gas here.

My buying spree this week has left me holding only 6% cash, my lowest cash holdings in a very long time. I betting, heavily, that the gold run will resume, and I don’t plan on being on the sidelines when it happens. We will see if I am correct.

The Dines Letter

We also had a fun discussion this week on the Buy High Sell Higher Forum about the Dines Letter, prompted in part by an article by Peter Brimelow on CBS MarketWatch. I happen to like Mr. Brimelow’s writing, but he, like most writers, can spin a story any way he wants.

He makes the comment that Dines was the Investment Letter Editor of the Year in 2006, obviously due to the spectacular success of his uranium recommendations. He then goes on to say:

“The Dines Letter is up 28.2% over the past 12 months vs. 15.1% for the dividend-reinvested Dow Jones Wilshire 5000, according to the Hulbert Financial Digest. And over the past 10 years, Dines is up an even more impressive 19.8% annualized vs. 7.4% for the total-return DJ Wilshire.”

Hmmm. So from July 1, 2007 to June 30, 2008 Dines is up 28.2%? What was his return during 2007? Obviously he didn’t win Editor of the Year that year.

Here’s my favourite quote:

“These stocks are rated “buys” in Dines’ top-performing “Long-Term Growth” portfolio: PAA.TO – Pan American Silver Corp., DML.TO – Denison Mines Corp. , LAM.TO – Laramide Resources , FRG.TO – Fronteer Development Group Inc. , MGA.TO – Mega Uranium Ltd. , PDN.TO – Paladin Resources Limited , UUU.TO – Uranium One Inc., and Arafura Resources”

Interestingly, that’s a list of 8 stocks; there are actually ten on that list, with the other two stocks also rated a buy, but not doing particularly well of late.

I’m surprised he didn’t pick the “Low Priced Stocks” portfolio, all of which are rated a buy, and all of which are down between 37% and 87%. Yikes.

However, I guess the point is that you can look at whatever period you want, and draw your own conclusions.

If you started investing with Dines at the start of 2007, you hate him. His recommendations have cost you a lot of money. If you’ve been with Dines for the last 10 years, you are up about 20% per year, so perhaps you love him.

I neither love him or hate him. He is a commentator with his own opinions. Some will be right, some will be wrong. Like many people before him, he has a big ego, and may be tempted to tout a stock that he owns for his own gain. So be it. We all know how the game works, so if you don’t like it, don’t subscribe to his newsletter.

(Obviously I have a big ego as well, or else I wouldn’t be writing a blog every week. Unfortunately my subscriber base isn’t as large as Mr. Dines, and therefore whatever I say has not impact on whether a stock goes up or down, which is probably a good thing).

Another hot summer day is upon us here in Southern Ontario, so I will leave the computer and go outside and enjoy it.

As always, thanks for reading my somewhat less long summer commentaries, and feel free to post your thoughts, long or otherwise, 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.

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.

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.

Last week I was down down 7.4% on the year; as of today I’m down 15.3% on the year, so it was a very bad week.

Sadly, it was the blue chips that killed me.

K.TO – Kinross Gold Corp. was down 17% on the week, AEM.TO – Agnico-Eagle Mines Ltd. lost 12.8% and G.TO – Goldcorp Inc. was down 10.4% on the week.

How bad is it?

Well, as you can see from this Kinross chart, the uptrend line dating back to the September lows has been broken, but the uptrend going back to the August lows is still intact, which means we could still see a drop into the $16 per share level. On the other hand, an RSI at 33.89 is about as low as it goes for this stock, and the two previous times in the past year the RSI has been in the 30 range marked important bottoms, including the one on August 16, 2007.

I won’t bore you with the other gold charts, since they all look similarly brutal. I will however show you the gold chart:

Have we reached a bottom at $880? Or will we fall down to the 200 Day Moving Average around $818, which was the springboard for the last major up move?

I have no idea. On March 1 I said “I would therefore not be at all surprised to see significant resistance at the $1,000 level, and it would not surprise me to see gold pull back to the 50 day moving average around $900, like it did around Christmas 2007.” I expected a dip, and I suppose if $880 is the bottom my guess will fairly accurate. Unfortunately I didn’t sell everything on March 1 to play the dip, so close only counts in horseshoes and hand grenades, as they say.

Since I’m stubborn, probably stupidly so, I’m not giving up on the golds yet. The gold market is the most manipulated market in the world, and I have no doubt that the manipulators will start driving it back up at some point soon. I plan to see if the $880 level holds this week; if not, we are probably looking at the $825 level as support, so it may be time to lighten up.

The economy is still in the tank, and America is still being crushed under the weight of silly regulations. (It has nothing directly to do with the stock market, but check out this great piece by Peggy Noonan in the Wall Street Journal as an example of what the U.S. government is doing to crush the spirit of it’s citizens. I’m a Canadian, so I’m not making a political statement here; I’m merely an observer on this one). That all bodes well for gold.

For the second week in a row, my biggest winner this week was UUU.TO – Uranium One, Inc., up 6% this week, after a gain of 14% last week, as it bounces off the bottom. It’s still in an obvious down trend, but when a stock gets completely oversold it’s quite easy for it to rebound by 20% in two weeks, so again I see no point in giving up at the bottom.

I did liquidate some of my junior uranium losers this week, and I am now sitting on 20% cash. Last week I said my plan was to liquidate losers and place below market stink bids on stocks I wanted to own. My stink bids got filed on a few juniors this week, and I plan to continue to deploy the cash with more stink bids this week.

However, I won’t be chasing any stock. I’ll pick up the bargains, with a view to selling when the market bounces back, either in the coming weeks, or the coming months, as it inevitably will.

Help me alleviate my confusion by posting your comments on the Buy High Sell Higher Forum; see you next week.

Well, we are talking about the stock market here; it’s only money, so I am neither happy or sad. Obviously I would prefer that my portfolio increased by 10% every week, but that’s not the way life works. Overall, I’m quite satisfied, for a number of reasons:

First, markets go up and down. We are in a consolidation period at the moment, which may last for a few more days, or weeks, or even months. There’s no point in me trying to force it; it is what it is. As the chart of gold shows, we are in a temporary consolidation period, but the overall trend dating back to August 16, 2007 is still up.

Second, some stocks actually did well this week. My biggest winner this week was UUU.TO – Uranium One, Inc., up almost 14% on the week:

The chart looks terrible, but the low of $3.16 reached on April 1 appears to have been an over-reaction, so even though I’m back to the break even level on this one, I see no reason to be selling at these levels, and an uptick to the $8 level is a possibility.

Third, many commentators are starting to see signs of life. Merv, proprietor of Technically Uranium with Merv, is now bullish for the short term, and will probably turn intermediate term bullish shortly. Mr. Dines released his latest The Dines Letter yesterday, and he’s bullish. (Of course he’s been bullish all the way down, but even a stopped clock is correct twice a day, so Dines is due to be correct at some point). Casey is also bullish, again provided you make your purchases at prudent prices. Jim Sinclair has a gold chart on his site that indicates a strong likelihood of more volatility in the short term, but long term he also believes the trend is up for gold.

Fourth, we traditionally have a rally in the April/May period. Davidslane started the discussion on the Forum with his post on the April rally, and many of you chimed in with your opinions, saying basically that you’ve got to make up your own mind.

As I’ve been saying for a while, and as is obvious to everyone, we are in a volatile period, so placing stink bids and selling on pops is a good strategy. Until all of our non-gold stocks start making new highs, we have to play the ups and downs as though we are still in a bear market.

So, my strategy continues to be as follows:

1. Decide what I want to own, and what percentage of my portfolio I want it to be.
2. Place stink bids at below market levels. There will be big swings, so don’t chase a stock. It will probably come back, so be patient.
3. Don’t chase a stock.
4. Don’t chase a stock.
5. For added clarification, in case you didn’t understand points 2, 3 and 4: Don’t chase a stock. We are NOT in a booming bull market, so it’s unlikely that a stock will continue to rise day after day for 10 straight days. There will be pull backs, so that’s where you buy.
6. On the juniors, pick a profit level, and put in your sell orders now.

By following this strategy, you can buy attractively, lock in profits (since it’s not a profit until you sell) and then re-deploy the cash on the down swings.

What’s a reasonable profit? It depends on the stock, but if you bought a junior at a depressed price on a down day with a stink bid, than it’s probably not unreasonable to put in a sell order 30% above that level in the hopes of being filled on a big up day, on the theory that with that level of increase a pull back becomes increasingly likely.

Of course the biggest flaw with this strategy is that if a take over of a junior is announced and the stock doubles in one day, you can only make 30%, and with many of these juniors take overs are likely. To mitigate that risk perhaps you put in a sell order for half of your position, and then manually sell the rest it the rise was not due to take over talk. (Or, take the 30% profit and be happy).

For example, how could you play DML.TO – Denison Mines Corp.?

Obviously we have a series of lower highs and higher lows, so at some point this stock will need to break out, probably to the upside. But with this huge amount of overhead resistance, the chances of a smooth ride to the top with no corrections along the way are virtually zero. A bounce up to $9 (around the 200 day moving average) would not be unreasonable, so perhaps a sell order at $8.99 would be in order. If you don’t already own the stock, perhaps a stink bid at $6.50 would make sense.

To summarize, I expect continued strength in April and into May, at which point I will begin to raise cash for the typically slow summer season, and to lock in gains. I also plan to keep a short trigger; if I start losing, I’m selling; I’m not letting losers run. I’m at 17% cash now (same as last week), as I continue to sell losers and place stink bids on stocks I want to own.

As always, thanks for reading, and keep on posting your comments on the Buy High Sell Higher Forum.

According to the Buy High Sell Higher Forum Stats Page, there were 17 new Forum members in March 2008, the most new members in any month in the last year. The number of new posts, and the number of members on-line at any given time were also at or near record levels.

Obviously the Forum is very small in comparison to every other site on the web (which is the way I like it; I have a day job, so I don’t want to spend all day deleting spam posts from internet crazies, and I prefer a smaller core group with intelligent thoughts to share, rather than thousands of people with time to kill). However, even though it’s small, I think it is a good indicator of “mass psychology”. At major inflection points (up or down) we pay closer attention to our stocks, and we want to talk about it more.

So, using you, my dear readers and contributors, as my technical indicator, I hereby proclaimed we have bottomed.

Until the next bottom, which quite likely will happen in May, or June, or the summer, or sometime soon. These are volatile times, you know.

Let’s look at some charts to see if the BHSH Forum Indicator is correct and we have reached a bottom. First gold:

insert gold chart here

This three year gold chart clearly shows that we are still in a bull market. Obviously the pace of the increase has slowed, but it still looks up to me. I assume that $900 is the new floor, but time will tell if and when another retest happens.

This chart of G.TO – Goldcorp Inc. indicates quite clearly that we are in a bull market, and the uptrend line drawn from the August and December 2007 lows remains intact, so I see no reason to panic.

The chart of AEM.TO – Agnico-Eagle Mines Ltd. isn’t quite as pretty:

Even so, the August and December lows have never been in jeopardy, and we are now again above the 50 day moving average, so I’m a buyer at these levels, not a seller.

It looks to me like ABX.TO – Barrick Gold Corp. has also found support, although it ended the week down 3.4%:

Barrick remains well below it’s 50 day moving average, but at these levels it’s also a buy. This is about as old-fashioned a blue chip gold stock you can get, and when gold resumes it’s upward run and gets back in the headlines, this is the stock that all the fund managers will be buying. It’s a nice conservative piece in every portfolio to counter-balance all the higher risk stocks we all love to ride up and down.

Uraniums

The uraniums don’t look anywhere near as pretty, but bottoms do appear to be in sight.

FRG.TO – Fronteer Development Group Inc. has had the crap kicked out of it recently, losing two thirds of it’s value in the last year. (You can review the explanation from my March 22 Fronteer Development Group commentary).

It’s small consolation, but the June 2006 lows have held. The low for the year was $4.77 on March 24, so closing on Friday at $5.56 is a very good sign. My interpretation is that the April 1 close of $4.89 was the retest of the March 24 low, and it’s now onward and upward from here. That’s good news for me, since I’m in the hole on Fronteer, so a bounce would be appreciated.

DML.TO – Denison Mines Corp. has a similar chart, although not nearly as bad:

Obviously we are still in a downtrend, but it appears that $6.19 will be the bottom, reached on February 7 and 8. We got down to $6.48 on March 31 and held at that level, so again I’ll interpret that as a retest and assume we are going up from here. My average cost is $7.56, so at Friday’s $6.84 close I’m under water, but the direction looks good, so I’m holding.

The best performer on the week for me was UUU.TO – Uranium One, Inc. , down 11% on the week, including an uptick of 15% on Friday, so time will tell if we have finally reached a bottom.

My guess at the moment is that April will be a good month, but as we approach May the selling season will begin. “Sell in May and go away” is usually wise advice, particularly when dealing with the Canadian juniors since the summer is vacation time here in the Great White North. (And yes, it’s April 4, and there is still a lot of snow on the ground in my corner of Southern Ontario. Fortunately we are expecting sunny and warm temperatures all weekend, so this weekend won’t be spent sitting at my computer). I will start to trim as the month winds down, and then we will see what we do from there.

The week started down, we recovered a bit at the end , but I am still down 8.3% on the year, but for now I’m content to hold as the market recovers.

Thanks for reading, and keep on posting your comments on the Buy High Sell Higher Forum.

Apparently we are supposed to “Join people all around the world in showing that you care about our planet and want to play a part in helping to fight climate change. On March 29, 2008 at 8 p.m., join millions of people around the world in making a statement about climate change by turning off your lights for Earth Hour, an event created by the World Wildlife Fund.”

Hmm, sounds like a publicity stunt to me, and a pretty good one at that given all of the companies and organizations jumping on board for a piece of the action.

Let us assume for a moment that “climate change” is a real thing. (They used to call it “global warming”, but here in Southern Ontario, and in most parts of Canada and the North Eastern U.S. we have had the coldest and snowiest winters on record, so obviously it’s not getting warmer; hence the new term “climate change”, but I digress).

Let us further assume that reducing our usage of electricity will help with climate change. Again, a stupid assumption. If nuclear power created our electricity, there would be no “climate change” impact to having my lights on, so I wouldn’t need to get used to living in the dark, which apparently is the point of Earth Hour.

But that’s the point: if we really want to help the planet, we should move as quickly as possible to nuclear energy, which produces no greenhouse gases. Instead, we are all encouraged to turn off our lights tonight for an hour, presumably to conserve energy so that tomorrow we will have more coal to burn! In other words, Earth Hour will make matters worse, not better!

Instead of tackling the real problem, which is burning fossil fuels, we will attack the symptom, which is turning on the lights.

What will I learn by turning out my lights for an hour? I guess I will learn that the solution to our problems is to go back to the way we lived two hundred years ago: we rose at daybreak, and went to sleep at sunset. Apparently that’s what the organizers of Earth Hour are trying to accomplish: a return to pre-industrial civilization. Let’s all get used to living in the dark!

Well meaning, but stupid.

Here’s a better idea: why not have a Reality Hour. Instead of sitting shivering in the dark, why not encourage everyone to spend an hour lobbying our leaders for environmentally safe forms of energy, like nuclear, solar, geo-thermal, etc. That would actually accomplish something.

Now, on to more pressing matters.

Gold

The action in gold is unfolding in a not-unexpected manner.

On March 1 I showed a chart of gold and said that it was looking overbought, and then I wrote “I would therefore not be at all surprised to see significant resistance at the $1,000 level, and it would not surprise me to see gold pull back to the 50 day moving average around $900, like it did around Christmas 2007.”

As this gold chart shows, gold did pull back below $925, and now sits at $931.20, slightly below it’s 50 day moving average of $938.52. I still believe that gold will be volatile, but the trend is up, so I’m sticking with it.

For another perspective, check out this article from Zeal Speculation and Investment that gives a good picture of the precious metals world as it stands now.

Uranium

The uranium stocks continue to flounder, apparently attempting to prove that they have found a bottom.

Back on March 8 I mentioned DML.TO – Denison Mines Corp., and I bragged that “a week ago I sold DML.TO – Denison Mines Corp. at $9.17; since I paid $6.93 a short time before, I was quite satisfied. It closed on Friday at $8.61, so I’m placing my stink bids at $8 this week, just slightly above the 50 day moving average.” That $8 stink bid expired, but I did get back in at at average cost of $7.56, so it looks like a good trade; selling at $9.17, and getting back in at $7.56.

Denison closed at $6.67 this week, so I’m under water at the moment, obviously having bought back in way too soon.

We are now in the “retest the lows” phase of the market. Denison bottomed at $6.19 on February 7 and 8 of this year. $6.67 is still higher than $6.19, but not by much. I see no reason to sell here, but my stop loss is placed at $6.18; if Denison falls to that level, I’m out.

We have talked a lot about UUU.TO – Uranium One, Inc. recently (I started buying when Mr. Dines said to sell). I bought in at an average price of $4.67; it closed this week at $3.93, so obviously that was the wrong move, as it is now at a multi-year low. Probably time to admit defeat and bail on this one, although at these levels it is now a prime takeover target, so since my investment is small, I’ll probably just ride it out.

I guess that’s really the play over the next two or three months. At these depressed levels, senior gold, silver and uranium companies can buy up juniors at bargain basement prices. We have not yet witnessed a waive of merger activity, but at these levels it’s inevitable, so I plan to ride it out for a few more weeks.

Dines Letter

Incidentally, our friend Mr. Dines came out with his latest Dines Letter yesterday. As always, it was compelling reading, as he spent most of the newsletter explaining why he was “flabbergasted” that his recommendations have sucked so much over the last year. Here are some quotes:

“Specifically predicting market turns is so difficult – perhaps virtually impossible….” and “It is probably impossible to predict the extent of the move.” I agree, but it would be nice if he could at least get the general direction of the move.

He then talks about the stable long-term uranium price while uranium stocks have crashed, and then says “It never dawned on us that the Mass Fear in the stock market could drive uranium stocks this low for the biggest disconnect, the widest “Disparity”, we have ever witnessed.” Yeah, I think we were all surprised that the sub prime crash caused a liquidity crisis that killed resource stocks. However, Mr. Dines, take a look at the uranium chart on the right hand side of this page. The spot price of uranium is way down, so it’s not as big a “Disparity” as you may think.

He once again repeats the call for a rally that he has been making for a few weeks now, saying “Now we are looking for a rally in May”. Okay, I guess that means we will not have a rally in April, so I should sell everything now, and buy back in at the end of April? Apparently not, since most of his stocks are marked “Buy”.

He then goes on to quote himself from his TDL of January 13, 1996 where he says “This is no time to give up on gold……as a blind guess, the next one should rise toward the $2,626 to $4,375 area in the coming decade.” Well, at least he has the guts to print his predictions, even when they prove to be completely wrong. He then talks about uraniums, saying:

“Our first “Back up the truck” IWB the previous November (2006), which successfully called for a “Buy” within minutes of the uranium Bottom, was actually used again on 9 Apr 07, unfortunately, because the subsequent drop has been deeper than we expected. It shouldn’t have happened, but it did. What bothers us, looking back, is we still don’t know what went wrong.”

Yikes. He still doesn’t know what went wrong? Let me explain: the hedge funds piled in and drove the price up. We all made tons of money in 2006. Then they started taking profits, and then sold everything to cover their margin calls in the sub prime mess, so the prices crashed. It’s not that hard to figure out, really.

Then he caps it off with the classic “talk out of both sides of your mouth” strategy that makes us love all newsletter writers:

“Looking back, we are dismayed that we are left with
bullish long-term charts for gold and uranium, even while
gold and uranium stocks are in Downtrends, and we must
therefore assume that there will be lower stock prices
ahead until those Downtrendlines are actually penetrated.
The big question remains, how low can uraniums go? It is
not realistic to expect them to go to zero, which must
mean that they are nearing a Bottom Formation and
another great buying opportunity.”

In other words, prices will go lower, until they get to the bottom, and then they will go up.

Yup, that’s pretty much how it works. What would be more helpful would be to know how much lower they will go, so that we could start buying. Since he has most of his stocks rated as a “Buy”, I’m confused why he would tell us to buy stocks that are in downtrends and probably have more downside.

Oh well, I guess we will all have to do our own thinking, which is probably just as well.

It was an up week, but I am still down 7.7% on the year, so this may be the week where some stock losses are executed to stem future losses, and to preserve some cash for the next leg up.

Happy Earth Day (if you can read this in the dark), and I feel free to post your comments on the Buy High Sell Higher Forum.