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, made a higher low in December
and has surged 10% since.
For an American, 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 $100M market cap while GDXJ is mostly
comprised of companies in the $100M to $500M 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) 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.
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.
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, which
was sent to premium subscribers 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.
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!
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to rocket out of this bottom then we invite
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