Dow Roars to Multi-Year Highs on Positive Economic News
Markets put Greece to bed.
Finally... the RIP YOUR FACE off day that bulls have been expecting for weeks finally happened and markets around the world exploded to the upside. The DOW has been hung up on 13,000 points for the last few weeks tossing and turning back and forth and traders pulling their hair out whether to go short or long. The bearish selling pressure in the market abated late last week in one last head fake to the downside. The party was short lived for the bears as it was a place where many shorts covered.
YOU JUST CAN'T HOLD THIS MARKET BACK IN 2012. It is an end of the world bull. Investors are not getting any money in yield on debt, unless they are holding European paper. So the thought this year is that if the world is truly going to end... you might as well buy something where you can get a capital gain. Most often the $SPX is the preferred technical tool to read but in reality both markets need to be charted and it was this big barrier between 13,000 and 13,071 that the market has had a tough go of it for the last 3 weeks. Since it was such a tough area of resistance to get through... expect a bit of propulsion/momentum from this point and with a 200 point day on the US markets... we saw the propulsion that we were looking for. Ultimately there will be a correction and test of the 13,000 level, but it is clear that this market is going up. It is a year for oversold and beaten up names to come back. US financials, energy and other odd sectors that have lagged, it is the year for these companies to run.
Give it any excuse you want... but this market is cheap! Valuations of low multiples makes this market extemely cheap for this stage in the American economic recovery and should move up a couple points on average in valuation. Maybe 1 point per year for the next two. You've got ultra low yields for the foreseeable future, you have a recovery under full steam in the US and you have European fears that are subsiding for the meantime. You have the conditions in place for a BULL RUN to REMEMBER. Call it a face ripper or wife pimper or whatever... this is a market you don't want to miss out on... although it seems for the Canadian markets that this is an odd year for certain sectors with Oil and Gas and Graphite stocks leading the way on the Canadian side when it comes to commodities.
Read my article foreshadowing this break...
Beat the Market Stock Picks: One Step Closer to German Unification of Europe
It continues to remain a tough sell for many materials companies that are in extended consolidation periods and will probably do so until an extreme relative value point happens sometime this spring/summer which should coincide with a China rebound. Lets not fool ourselves. Without China buying millions of tonnes of commodities. Anything on the TSX that has gone up 1000% to 10,000% over the past 3 years is a tough sell on a relative basis without the strength of China behind it. I expect this (materials) theme and the unloved gold sector to bottom this spring/summer.
In the meantime... for materials... it is RISK ON which means game on for risky assets. The best gains in this market sector are finding undervalued companies that are exploring material assets that have the potential to create great value when compared to its peers.
Oil and Gas Stock Update...
Tag Oil Ltd.TAO.TO $10.05 is still going to be a screamer... It just broke $10 for the first time today which is a very big psychological level. TAG Oil can run a long way from here now. They recently spudded another well on Cheal that is flowing 1,100 BOD a day.
The Stock Market, Canadian Stock Exchange | TMX Group
Americas Petrogas BOE-V $3.96 on a great run of at least 50% when first mentioned in January. They raised a ton of money $60M bought deal at $3.50 after the company announced that Exxon and Americas Petrogas cased the first well with in the Vaca Muerta Shale with a thickness of 343 meters of oil shows. The potential of the Vaca Muerta is unmatched. It is why I think Marifil is one of the most mispriced assets on the market. They are sitting on the same formation. Not being O and G guys, they have completely overlooked this potential.
The Stock Market, Canadian Stock Exchange | TMX Group
Canacol Energy CNE-TO $0.98 remains a strong buy announcing a 227% increase in revenues.
The Stock Market, Canadian Stock Exchange | TMX Group
New Oil and Gas picks!!!
- Mart Resources MMT-V $0.96 - Mart is on track to be a major O and G producer in the Umasadege oil field in Nigeria. The company is in process of expanding its facilities to handle 35,000 barrels a day and is also in talks with a subsidiary of Royal Dutch Shell to gain access to their export facilities. The discovery in Nigeria is so good, the problem that MMT has is tying in production and expanding facilities as it looks like the potential of MMT's UMU-9 well is well beyond current expansion designs. The Stock Market, Canadian Stock Exchange | TMX Group
- Hart Participasoes em Petroloeo S.A. HRP-V $3.69 - Hart is a highly prospective explorer with the former Petrobras team. It has been a decent bottom fishing pick in January mentioned between $2.50 and $2.30 in January. This company is at an earlier stage than the others above, but are exploring some very large producing oil fields.
Most materials stocks will continue to lag...
In the materials sector, without the Chinese economy confirmed to be rebounding... this area continues to be a stock pickers market. You need to focus on companies that are cheap and creating de-risked or low risk value through early drilling programs. Certainly in the gold market this is very true... POG has broken its downtrend but still has a bearish bias with it testing the trend it broke as support. POG can work its way down along the other side of the trend in a range bound motion until it finds support. If it goes under $1600, that would be where I would have to put money to work on a buy point. The global economy may be recoverying, but it is recovery based on monetary debasement and FREE MONEY. The short term positive sentiment puts gold in no man's land until it finds a place where investors and traders see value. To me that looks like somewhere under $1600. Not being able to hold $1700 late last week and early this week was key that the momentum is still rangebound and sideways at best. Problem is that the range on gold is between $1550 and $1800. That is a very wide range. One thing of note is that many gold stocks are extremely oversold and currently the gold stocks and POG have little correlation to each other. Esepcailly when looking at the big picture of wehre gold is on a year over year basis and where the stocks are. A 10% to 15% correction in gold means a 50% correction in the stocks with really little jsutification for the material drop in price.
But that is the stock market for ya.
I am a pattern watcher and one pattern that I see shaping up that gold seems to follow is the Inverted Head and Shoulders Pattern. Currently I ama buyer at these levels and not a seller although I see no conviction to the upside in gold. Not yet.
This already seems like an off year for many materials companies, especially those that went on BIG RUNS in prior years. Gold and materials in general is an industry that you still need to be very selective until Chinese economy bottoms. It is an area that presents great value, but you will need to be patient for the next 6 months. The companies that I would selectively position into in the materials sectors are not the junior miners or explorers, but in the extremely cheap micro market ($5M to $20M market cap) that have good early stories with decent news that are well financed. The big high grade discoveries are few and far between these days and other than Tembo Gold TEM.TO or RoxGold ROG.V the pickings for a new big discovery just aren't there. What the market needs is another ARU type story, and it just isn't happening. Canaco was looking like it could be that story, but looks like they are going to come up well short on ounces if the price action is any indication.
Correction: Tembo Gold Reports 16.10 g/t Au Over 3.00 Meters and 3.13 g/t Gold Over 25.89 Meters from Tembo Project, Tanzania
The best chance at value creation these days is the often overlooked low grade deposits that were not explored in the past because of the low grade nature, but represent 3M to 5M oz targets that could be bulk mineable. These are the best value creation stories. Like Gold Canyon was in the spring of 2010. They released great news for 6 months before the market caught on to the story. The SP languished around $0.25 from March 2010 (when I started following) to August 2010 when the share price really started to take off. 9 months later Gold Canyon was topping out at $4.20, a remarkable run for a company that was $0.20 to $0.25 cents 12 months prior. I wouldn't buy Gold Canyon now... not because I don't like it... but because it is a name that does not have the leverage even if they double the ounces over the next 2 years to 7M. It is also moving up the evolutionary life cycle of a mining company (explorer/developer/miner) into a development project with a whole slew of risks taht are not attached to a typcial exploration early development project and currently that is something the market has no appetite for. Development projects are much more dependent on mining type news including feasibility studies, environmental permits, strategic investors etc. It has moved out of the sweet spot for where an investor has the chance to really make some de-risked highly leveraged dollars. It is also still trying to bottom and find value as a development play.
I can name producer after producer with 200k to 500k growth profiles selling for a fraction of what they should be entering into massive prodcution growth over the next 3 to 4 years. The market doesn't want them. Gran Columbia GCM-TO and Petaquilla Minerals PTQ-TO being two highly prospective producers on my list. One day this market will turn around.
Other classic unloved stories having a tough time in this market are Canaco CAN-V and Trelawney TRR-V and are proof that the buy and hold strategy does not work in this market unless you are an early investor. The sweet spot for these type of stories where most of the gains are made seem to happen all within 6 to 12 months. Rule of thumb... there is a limit to the price anyone will pay for these low grade deposits so if the discovery pushes a company to a $500m to $1B market cap. Take some profits, because the reality is... even if these discoveries make it to mine... it will be another 5 to 7 year process with little in the way of leverage unless the discovery gets bought out. Be rest assurerd though, timing is everything and if a company does not get bought out within a certain timeframe from discovery, a buyout usually won't happen until the mining project is in operation or close to being in operation.
The market sentiment is there for selective gold plays... but it is clear the market wants fresh meat and a new discovery.
That is why over the last 2 months the interest in the gold stocks has been in the new stories that have good leads while many big discoveries from the past 2 to 3 years have lagged over the last year. There have been some big volume days with crazy price action on several 'new' to the market low grade discoveries. I won't mention them now as premium members are still doing their DD on these companies, but there is a group of companies that have flown to astronomical heights and more importantly created huge volume in the last 2 months on announcements of a gold discovery. One name I will mention because I featured the company last year is Calibre Mining CXB-V. The company has made a very interesting copper gold discovery on the B2 Gold jv making giving new life to these highly prospective properties in Nicaragua. Calibre has traded almost the entire float of the company in the last 2 months.
B2Gold Corp. and Calibre Mining Corp. Announce New Drill Results Discover Significant Porphyry Style Gold and Copper Mineralization at the Primavera Project in Nicaragua
Once the retail investing community has tired of a story... it is on to the next sparkly/shiny stock. I am not saying its right... its just how it is these days with limited retail dollars chasing a ton of companies. With Chinese trade deficit as big as its been in a 20 some odd years... investors are shying away from materials. One thing in the recent numbers out of China that most aren't telling you is that the trade deficit is exasperated by the fact that China's internal economy is strong and Chinese Consumerism and a strong Yuan is enabling purchasing of a lot more stuff outside of China. The European minor recession has also exasperated these numbers to an extreme, but with a continued rebound in the US economy, expect increased consumer confidence and US imports from China to increase, a Chinese rebound seems near. US strength and the hope that the new China regime will stimulate should bring a decisive bottom in this sector sometime this year. You can already see policy change in many developing countries including China, so there is hope that the emerging markets are bottoming this year.
That is the great Canadian hope anyway.
When you have big guys with huge audiences telling people to stay away and there is a big crash coming in 2012... This has a lot of people scared stiff to do anything which is the worst decision of all. Put your money to work! What it does mean is there is a lot of cash on the sidelines and if the markets continue to go up... pyschology is going to drive this idle cash back into stocks. Its tragic really, b/c the arguments being used by the old timers are baseless and ignore a wide range of fundamentals and are narrow minded. Common sense says the market are going up.
You should be 100% invested in this market. If you want value... materials are great place to hide... If you want momentum... O and G and Graphite are the best mometum sectors so far this year.