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Old 03-23-2012, 07:29 AM   #1
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Mr.T Start buying... (picking a bottom in the miners)

By Tuesday, this decline will be over. I thought we were done going down in December but I knew the possibility of a retest was likely since we bottomed during the light volume holidays. This time around I think the conditions are much more ideal and I would be buying the Miners for this bounce and here is why.

The HUI had a closing RSI of 27.55. A reading below 30 is extreme. However this low has only happened a handful of times and we've almost always had an explosive move that followed. The only time it didn't happen, historically, was during September of 08. From there we had a monster bounce and then dropped 40%. So, play the bounce and keeps a stop loss. Contextually, given the 15 month correction we've had in gold stocks, I could see this being a double from here inside of 9 months. Allow me to elaborate.

Sentiment is compelling. The Market timers gold sentiment numbers gave a -15.7% reading this past Monday which was extreme. That means that market timers are net short. This reading is lower than at any time during the '08 crash and that's a big deal. I hate to put it this way, but the market timers are the dumb money. Always fade their sentiment. This extreme of a reading is incredibly rare and has always resulted in a strong rally.

Another piece of evidence is the positive divergences developing on the gold stocks vs gold. Yesterday, gold his a new low for the move and then managed to retake ground and hold support. Meanwhile, the gold stocks didn't. That is bullish. Not to mention the fact the indexes were able to do this when GOLD (randgold) was down 12%. That is a major headwind (and component) for GDX, XAU and HUI.

All of this combined with gold going into backwardation. Don't get cute fellas. Start buying.

So get your orders in and set your stop losses once you are filled. This should be quite a ride.
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Old 03-23-2012, 05:31 PM   #2
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For a long time I've been meaning to do something with my digifiat, I'll hopefuly finally get around to it this weekend with the positions set up for Monday morning. Thanks for the reminder!
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Old 03-23-2012, 06:46 PM   #3
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digifiat ... I like it.
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Old 03-24-2012, 06:39 AM   #4
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EXK is good for swing trading too. I think it hit the bottom Wednesday and is good for another 25% climb.
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Old 03-26-2012, 08:20 AM   #5
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Thank you Ben Bernanke!

I will be sure to post in this thread when I think this move is over. Can't call the bottom and not call the top
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Old 03-26-2012, 10:39 AM   #6
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Even with pms up massively, some of the big miners got hammered at the opening of the NYSE (after beeing up quite a bit pre-market), maybe it were automatic limited sell orders above certain level which were placed by panicking institutionals during the recent takedown :






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Old 03-26-2012, 10:46 AM   #7
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That is normal for a gap up. We are currently 1.6% up on gdx.. 2.84% on gdxj.

Remember.. They "hinted" at QE.. Didn't announce.

We don't want excitement but it definitely feels like a turn. Some backing and filling might be in order but i like our odds of this correction being over.
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Old 03-28-2012, 10:38 AM   #8
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Man I dipped my toe into the miners via GDX a few months ago and its just bit sliced off. Hopefully at some pt this turns out ok. Seems like sentiment can change in an instant. Maybe it will take another huge move in gold to above 2k and staying there for 6 months for people to feel comfortable.
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Old 04-02-2012, 09:06 AM   #9
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Finally we get some fireworks in the miners
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Old 04-02-2012, 09:41 AM   #10
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Always buy weakness and never use leverage in these things.

I would also recommend against GDX for anything other than hedging. GDX has a high concentration of producers.

Allow me to explain my reasoning...

When you own a mining company, the best gains are done when a discover it made or a project is taken into production. NEM isn't going to feel a big push from making a discover because they don't do any exploration and are too big for any discovery to actually matter. However, miners like NEM will feel the pain when an unforeseen event shuts down production for X amount of time. If you look at the components of GDX, you have WAY too many names that have had blow ups recently. BVN, AEM, GOLD and NEM have all had events that caused headaches for investors. if you look at the components of GDX, it's filled with those kinds of names.

So... Yeah, you have a ton of names that have basically no upside but primed for land mines to temporarily disrupt prices. With only 20-25 names, those landmines will severely impact your pocketbook when you step on them. Plus, most of those companies have falling reserves, not expanding. So they will have to go out and buy the smaller names. The only names in the GDX i'd ever consider owning are AUY and EXK.

Instead of the majors, I think you go with junior producers. That way you can actually get the upside during a discovery. If you look at the top holdings of GDXJ, you can get a pretty good idea of what to look for.

Expanding reserves.

Friendly jurisdictions.

FULLY FUNDED projects.

Companies that have properties near major producing mines. (think take overs)

Naturally.. the way that GDXJ is composed is much more broad than GDX.. It has 80+ names which IMO is way too many. My strategy is focused on 30 junior producers and trade them based on sentiment as a contrarian indicator.

Last edited by DSAbug; 04-02-2012 at 09:47 AM.
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