Junior Mining Shares

After several stalled attempts to get our junior mining shares moving again, it now appears we are headed into the weak summer months in a tough position. Our market is obviously having major problems instead of the turnaround expected in late-winter early-spring this year.

To make matters worse, the sell-in-May-and-go-away crowd is probably kicking into gear a bit earlier than anticipated because of the poor market conditions. We are also getting some selling related to the payment of taxes in April for Canada and the U.S., although most don't have much to worry about regarding capital gains taxes this year.

To get some perspective, I wanted to show a 10 year chart of the TSX-V which is the best representative index to follow regarding the Canadian junior mining shares that are typically recommended in my newsletter, The Mining Speculator.

This chart shows the exceptional market we had from 2000, when I started the newsletter, until the end of 2007.

It was a glorious ride that made plenty of investors a ton of money.

Since that time we have experienced the 2008 meltdown and, unless you were lucky enough to have cash on hand and smart enough to be a contrarian, most investors missed the phenomenal gains that were made from the low point of 2008 as the market roared back.

This chart also clearly shows that we only recovered a little more than halfway from the bottom of the 2008 meltdown (TSX-V 700) to the 3,350 highs our market hit during 2007.

The highest we have been from the 2008 meltdown is TSX-V 2,400. We now have shed about 1,000 points from that high to where we currently stand at the moment at TSX-V 1,400.

I also like and track the HUI and XAU indexes because they typically are leading indexes to the TSX-V and represent producers that most often move first when the market rebounds. Right now the HUI and XAU indexes have been spanked as well, each losing roughly 25% since the last highs in December of 2011.

This appears to be a critical moment technically from a chartist standpoint, as any further weakness could drop us well below the moving averages that are so important in technical analysis.

Right now, I would have to say it looks like our market could go lower as the summer slow season approaches before we get some wind behind our sails later in the fall. That spells a long summer drought in an election year where things are definitely being managed for the sake of the elitist agenda.

As is typical with the summer session, things typically bottom out mid July before beginning to recover and the robust summer drilling season starts to report assays.

From my perspective, it's easy to see in the 10-year TSX-V chart why things were so much easier from 2000 to 2007, when the pauses were short and the runs higher had some staying power.

I believe we are once again going to be in the doldrums for at least several months before our market can begin to correct to the upside.

However, and this is the important part, there is absolutely no indication that the precious metals bull market is over.

We are just pausing to consolidate from our last run higher that petered out in February of 2011. After that, 2011 turned out to be a bummer of a year for the juniors.

What we need to remember is that the debt and derivative problems in Europe and the United States have not been solved, but are actually getting worse while they kick the can into a deadend alley and continue to spend like drunken sailors.

The terrible moment of reckoning is coming.

I wish I knew the timing, but am certain about the final outcome.

I like the quote by Clive Maund who said recently regarding this topic:

It’s true that “they” might throw in the occasional deflation scare as an arm-twisting measure to justify bailouts and more QE etc, but other than that the course is set firmly in the direction of fiat worthlessness. --Clive Maund

What this means is higher prices for the precious metals and their corresponding mining shares as the day of consequences overtake the manipulations of mindless mice (the mainstream media idiots) and power-seeking men and women (the politicians).

I think most investors in the junior mining sector understand that there is no ultimate sustainability to the financial mess we read about on a daily basis, and that we will have our day at some point.

What we are looking for right now, however, is our next big run to higher ground where we can make some solid money instead of taking horrendous losses.

For the most part right now, I see these juniors becoming incredibly undervalued again and a time to buy as things bottom over the coming weeks and months ahead.

Watch for the HUI and XAU to make the turn to higher ground as your true indicator on when to buy in general terms the exploration and development stocks. Shortly thereafter we can expect the TSX-V index to begin its recovery.

For now, it may be time to get away from the computer and go out and enjoy the nice weather.

Get active doing something you’ve been talking about doing and stop worrying or fretting about where our juniors are at the moment. You will only drive yourself crazy thinking about it.

Just enjoy something else for a season and the next time you look we may just be on the move again.

Until next time,

Greg McCoach