Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Gold's Junior Mining Stocks Have Bottomed

By

Extreme bearish sentiment, compelling valuations, and an extreme oversold condition can create a compelling contrarian opportunity.

PrintPRINT
There is no need to beat around the bush. Junior mining stocks have bottomed. The bear market is over. Sure, we could be wrong. We've been wrong before and will be again. However, the evidence is too compelling and is growing by the day.

The TSX Venture (CDNX) is the market for juniors in Canada. The market consists of exploration companies focused on precious metals and other minerals, energy companies, and some technology companies. It's not a perfect indicator for the junior mining industry, but it's good enough for the experts. On Thursday, the CDNX closed at a nine-month high. No, that is not a misprint. The junior market reached a nine-month high. It bottomed in late June 2013, made a higher low in December and has surged 10% since.

jan15edcdnx

For an American, the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) is the proxy for junior gold stocks or junior miners. I like to think of GDXJ as the "senior," or established, juniors. The CDNX consists of many stocks trading under $1 and a $100 million market cap while GDXJ is mostly comprised of companies in the $100 million to $500 million market cap range.

GDXJ declined 81% from its April 2011 peak to its December 2013 bottom. As we noted several weeks ago, GDXJ tried to penetrate its December low three times and failed. The market has since rallied back above the previous (June 2013) low. Given the severity of the bear in terms of price and time, extreme negative sentiment, and recent bullish price action, I believe it is highly likely that the bottom is in.

jan15edgdxj

Our frame of reference for the bear, the gold stock bear analogs chart continues to suggest that the bear market in senior gold stocks is all but over.

jan15edbgmi

The juniors (both CDNX and GDXJ) peaked in April, or five months before the senior gold producers. Hence, it makes sense that the juniors would bottom first. The assertion from the analogs chart (that the seniors may have bottomed, or are very close) gives us further confidence that the juniors have bottomed.

Most of the stocks that we follow bottomed in June. The following chart is an equal weighted index of 15 of our favorite gold and silver stocks. The index bottomed in late June 2013 and made a strong higher low in December. It would have to decline 26% to test the June low.

jan15top15

Extreme bearish sentiment, compelling valuations, and an extreme oversold condition can create a compelling contrarian opportunity. However, that opportunity can remain far-fetched without some positive price action. We now have the positive price action that allows us to call a bottom in the mining stocks, and strongly so in the junior gold stocks. The CDNX looks to have made a real double bottom and closed at a nine-month high. GDXJ reversed course after failing to continue a breakdown when the time was ripe. Moreover, as evidenced by our top 15 index, the stronger and higher quality companies are showing leadership. The risk has shifted from getting caught in a final plunge to missing out on the rebound.

Good luck!

Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT

Busy? Subscribe to our free newsletter!

Submit
 

WHAT'S POPULAR IN THE VILLE