Monday, September 27, 2010

Mysterious Monthly Moves of Metals Miners

Mysterious Monthly Moves of Metals Miners

By: Marco G.

September 27, 2010

In 2009 Fall, there was a peculiar price pattern that was happening with metals miners. I was first alerted to this by a colleague who writes under the pseudonym of “HardRock” (suitable name). Since then, the author has often pondered about the movements and without result. The author and HardRock were both hard pressed to come up with any strong explanations for these moves.

Monthly moves of Large Cap Miners, SLW, CLF and TCK.

In the chart below for Fall 2009 (click to enlarge), the author has circled the monthly moves up and down of three large cap miners: Silver Wheaton – SLW, Cliffs Natural Resources – CLF and Teck Resources – TCK. SLW is the author’s favorite “La Crème de La Crème” Silver royalty company. CLF is a favorite of the author’s in coal and iron ore mining in America and Australia. TCK is a recovering, Americas based diversified miner of coal, lead, zinc and copper with minors in gold and silver.

Figure 1: Fall 2009 for SLW, CLF & TCK. Note the cyclical movements up and down every month.

The stock prices for these mining equities seemed to be making price movements on a regular basis monthly.

Cyclic Monthly Movements

The price movements appeared to correlate to the days of the month quite nicely. Starting at September 1st the stocks would move up in price until at the middle of the month. Then the prices would decline until towards the end of the month and would hit a low in the last few days of September. Then with a new month beginning, the cycle would repeat rising again. This pattern held for two months and then in November there was no decline until midway through December. So the cyclic pattern for November was stretched into mid- December.

Monthly Moves of TSX Venture, Gold (GLD) and Gold Miners (GDX)

The monthly movements that we noticed weren’t limited to the previous large cap miners, but it was observed as well in the TSX Venture Exchange Index, the price of Gold (using GLD ETF as proxy) and the Gold Miners Index (GDX). The chart of these market indicators is displayed below (click to enlarge).

Figure 2: Fall 2009 for $CDNX, GLD and GDX. Note the monthly cycles for the prices moving upwards and dipping towards month ends.

The monthly price movements appeared to correlate with the days of the month. This is wonderful, if a movement like this is predictable for these stocks.

Possible Rationale for Movements

Here are the author’s thoughts for the reasons behind the cyclic monthly movements. The rise in commodities and metals prices as in the Commodities Research Bureau ($CCI) Index drove the mining equities last fall.

Figure 3: CCI move in Fall 2009. Note the significant rise.

The price of Gold also made a strong move upwards last fall, rising from the Summer doldrums and peaking in late November.

Figure 4: Gold in Fall 2009. Note the significant rise.

These two factors drove the move for the TSX Venture exchange and mining equities in general. The dip at September month end may be attributed to the end of the quarter and for investors taking their profits for the strong move up since March 2009. The dip at the month end of October is attributed to investors taking profits and re-positioning for the tax year end. The dip at mid month in December is attributed to the annual hiatus and slow-down for the winter holiday season. The correlation to the months is merely the average investors’ methodical way of managing their portfolio based upon the time of year. This may be an explanation, but the rationale is not strong and I don’t really believe it myself.

Predictable Monthly Movement of Miners?

The investor in the markets needs any help he can get. If there is a valid repeatable reason, behind these cyclic monthly moves, then the investor being apprised of them may be able to adjust their equities positions accordingly. The author was wondering about this effect this morning and in examining it, noticed remarkable similarities to this Fall of 2010. Is the dip this morning, September 27th, 2010, the beginning of the larger dip for September month end happening? Is there more to the rising prices coming in October, November and December? And with the strong beginnings of moves in commodities and Gold this year, “Will this cyclic mining thing repeat this Fall?”

Disclosure: The author is long mining equities.

Important Disclaimer

The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

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