Monday, October 4, 2010

October Outlook - Gold & Markets

October Outlook – Markets & Gold

By: Marco G.

October 4th, 2010

Most pundits are calling for a pull back and regroup saying too far too fast.  They are saying this both for the precious metals bull markets as well as for the general markets in particular.  Witness these titles Silver looks vulnerable to a short term price falland “The Calm before the Stock Market Storm.  Here is an excerpt from the second article:
“The technical story is further confirmed by seasonality which points to October as the month most susceptible to steep declines and crashes while the fundamental picture is murkier.”
The author posits that these are just indications of the market climbing the “Wall of Worry”; in other words, the markets are shrugging aside these uncertainties and is just chugging ahead, lead by the demands for industrial commodities.

“Superman Steel” Stocks Showing Strength

Speaking of industrials, the leader of the pack are the Steel Stocks.  The author uses the SLX ETF as proxy for the steel sector.  This ETF is a dog’s breakfast of large iron ore miners and diversified miners mixed with steel producers as listed following.

Following is the last eight months chart of the Steels ETF SLX. 
Figure 1:  Superman Steel - SLX Steels ETF.  Note the push through resistance and the breakout happening.
Have we just witnessed the SLX push through resistance and showing the beginnings of a break out?  Do we know what we have just seen?  To the author’s eye, this sure looks like a good beginning.  Rather than talk, the “Superman Steel” stocks have just lead with action and have breached the resistance “Wall of Worry”.  With heavy industry leading the way, this bodes well for the overall general markets.

Canadian Venture Exchange Jumps at Month Start

An indication that the author looks for in determining the health of the precious metals bull is the appetite for risk as displayed by the Canadian Venture Exchange’s index.  This index is a broad selection of 400 + companies of the 2300+ junior resources and technology companies that trade on this exchange.  The key word here is junior, as most of these companies are small cap and do not meet the requirements for listing on a senior exchange.  The chart of the TSX Venture index for the past 3 months is following.

Figure 2:  TSX Venture Index.  Note the increasing volumes and the long white candles.
The author penned an earlier article about cyclic price patterns observed in mining stocks during the fall of 2009.  Essentially in the fall of 2009, the stocks were dipping near month’s ends and rising to peaks during the middle of the month.  That does not appear to be happening this year in 2010. 
What does appear to be happening is gradually increasing volumes that appear to not stop.  Also another curious indicator is the rush for shares at each months’ beginning pushing the index up in long white candles that are circled in the above chart.  Upon reflection, the author suspects this may be indications of a bull market.  In a bull market, the demand keeps on increasing as displayed in the increasing volumes.  Also in a bull market, with each month past, new participants rush in creating long white candles.  A bull market here for the juniors is  indicating support for the precious metals bull and possibly good times for the overall markets ahead.

What is Doctor Copper Saying?

Copper similar to steel is a leading indication of industrial activities.  The price of copper usually leads the market in anticipation of the economic activities forthcoming.  Following is the copper price chart for the previous eight months.

Figure 3:  Doctor Copper.  Note the break through April highs occuring presently.
Unsurprisingly even though the markets were generally red today, Monday October 4th, 2010, copper was green showing a 1% gain.  From the chart above, it appears Copper is making a push through April highs of this year.  As related by the author previously, the copper markets next year are forecasted to have a shortage with mines unable to keep up with demand from Asia.  This is mainly due to the Chinese not having sufficient copper production and having to buy from world markets.

Doctor Copper’s Conjecture

So both Superman Steel and Doctor Copper are in agreement.  The markets are due for an economic upswing forthcoming.  The TSX Venture exchange is showing a bull market is on for the junior cap companies.  In a full bull market, there are scarcely any pullbacks; the markets just rise and keep on rising as more participants rush in.  This is a good support for the precious metals.  Also the bull market for junior small caps is an early indicator and may spread to the overall markets soon.
Disclosure: The author is long junior 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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