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Without intending it, Rick’s Picks may have become an
oasis for gold and silver bulls who are at the point
of despair over the mining sector’s relentless, and presumably unjust,
plunge. We have good news for you: Using technical tools to tweak your timing
and risk management, it’s possible to buy “crap” stocks all
the way down without getting hurt if you’re early. We use the word
“crap” ironically, of course, since it is only when stocks have
been beaten down as badly as those in the mining sector that they become
screaming bargains. And that pretty much sums up the situation as far as
we’re concerned. Not that the blighters who have been doing the selling
couldn’t bludgeon bullion shares even lower before they relent. In the
meantime, wouldn’t it be lovely to take all that stock from their
undeserving hands — and to do so without penalty or punishment if we
are premature?
On the subject of mining-sector “crap,” a perfect example
is the execrated and abhorred GDXJ, an Exchange Traded Fund (ETF) that tracks
the shares of junior gold mining companies. Although it has an ardent
following among Rick’s Picks subscribers, GDXJ has unfortunately
proven treacherous to the financial health of long-term investors. Some of
them may have thought GDXJ looked like a great bargain a couple of months ago
when it was trading for around $30 a share, down from a high of $43 in 2011.
We told subscribers to hold off on buying, however, warning that the stock
could eventually fall to $20 or even lower. That is still a possibility.
Nonetheless, to avoid missing a possible long-term bottom, we started
nibbling at 23.93, a “Hidden Pivot” target first advertised in
the newsletter when GDXJ was still above $26. The buy at 23.93 proved timely
when the stock, having gone no lower than 23.90 that day,
surged to 25.79 – a 7 percent rally. With the stock steeply on the
rise, we further advised subscribers to take partial profits to reduce
position risk. And then we sat back and waited for GDXJ’s fabulous bull
market to unfold.
It was not to be, however, and when GDXJ fell anew, we recommended
exiting the position, still profitable on paper, at 23.59. And then we did it
all over again, buying August 23 calls when the stock was hitting a new,
targeted low at 22.74. The options cost us $1.80 apiece, but we were able to
reduce their effective cost to 1.45 by selling half of them for a profit when
GDXJ rallied to 23.85. Thereafter, it was “rinse and repeat”:
With GDXJ shares getting schmeissed yet again
yesterday, we exited the options on the opening for 1.50, booking a small
profit on paper. And now, we plan to try again if and when the stock falls to
our next downside target, 20.72.
Worth All the Work?
By now, you’re probably thinking this sounds very labor-intensive.
It is, but it is still the best way we’ve found to take the sting
– and most of the risk – out of buying assets that look like
bargains on paper but which are nevertheless continuing to get savaged on a
regular basis, however unjustified. This would be true of Silver Wheaton as
well, another mining stock with which Rick’s Picks subscribers have
had a longstanding love-hate relationship. We like the stock ourselves as a
long-term play, but our enthusiasm will always be tempered by the coldly
technical analysis for which Rick’s Picks is known. It led
us to buy June 40-42 calls spreads a couple of months ago when the stock was
carving out a promising bottom. Immediately thereafter, when SLW rallied as
expected, we took sufficient partial profits to reduce the cost basis of our
vertical bull spreads to zero. And a good thing, too; for despite Silver
Wheaton’s atrocious performance ever since, we continue to hold a
riskless, bullish position that causes us no concern. That’s not to say
our spreads will produce a profit, however. That would require SLW to rally
above $40 between now and mid-June, when the options expire. Most Silver
bulls would have taken that bet back in early March, when we got on board
near $34. But with the stock currently trading for around 28.34, it has
become a 50-to-1 horse.
For the record, we told subscribers to buy more Silver Wheaton shares
yesterday at 27.97, a Hidden Pivot correction target. Lo, the stock bottomed
at exactly 27.96 (see chart above) after plummeting $1.38, or nearly 5
percent, in the first hour of the session. The trampoline bounce from within
a penny of the target took SLW to 28.76 intraday. We were well on top of the
move with an intraday bulletin telling subscribers to take a partial profit
at around 28.66. This effectively reduced our cost basis for the shares to
27.47 – 50 cents beneath the pit-of-despair bottom achieved at the low.
How can we lose, right?
We’ll see. In the meantime, Rick’s Picks will continue to
do its utmost to help long-term bullion bulls precisely time mining-share
purchases so as to avoid the pain and misery of buy-and-hold strategies. You
can follow the process, and perhaps join in the fun, by taking a free
subscription to Rick’s Picks with just a click of the
mouse.
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