GDXJ Shows More Signs of Outperformance
HOUSTON – From the Chart Book. One hopeful sign for bargain loving Vultures who stepped in to build positions in their favorite junior miners and explorers late last year is the performance of the smaller, less liquid and more speculative miners and explorers relative to their larger cousins, like the companies represented in the AMEX Gold Bugs Index or HUI. We Vultures stuck our very long necks out in kind of a big way from October to the end of December – taking advantage of the shares being thrown overboard by tired, scared or disgusted penny stock gamers, or perhaps the Ridiculous Cheap offerings of late year tax loss sellers, who were more interested in maximizing losses than they were maximizing the amount of cash they might raise by selling.
At the end of 2011 The Little Guys, as we like to call them, were likely at the tail end of a very bad negative liquidity event period (NLE), which drove prices for many of them into Penny Stock Purgatory. From March to December of 2011 we went from a period where we were unable to find any junior mining stock bargains to the complete opposite – a bargain target rich environment for The Little Guys. The relentless negative liquidity event demoralized penny stock gamers to the point where sentiment became morose and defeatist. Then came the heavy tax loss selling period from October to December. The first part of the year was very good; traders had booked big gains; but the smaller companies sold off so hard after that the need to offset some of those gains with horribly beaten up juniors trumped all else. The Vulture Tax Loss Selling Season for 2011 was trophy class.
Now, however, it may be time for a little optimism for our Vultures who took advantage of the nasty sell downs of 2011. From about April to December the smaller miners and explorers were mistreated by the market and one way we can gauge that is by how they traded relative to the larger companies in the HUI. As the chart below comparing the Market Vectors Junior Gold Miners Index or GDXJ with the HUI shows clearly, The Little Guys strongly underperformed the Big Boys of the mining biz from at least May to December.
(GDXJ:HUI, daily, 2-years, performance. If any of the images are too small click on them for a larger version.)
Continued…
Who knows if this over performance will continue long enough to engender a new wave of trader confidence, but if we are going to see a new Positive Liquidity Event (PLE) this is the kind of chart action we might expect to see to get it started.
Just to show that the chart above is not some kind of relative performance trick, below is a chart of The Little Guys relative to gold metal. Clearly we can say that at the very least a change in trend is attempting to get underway. When the smaller junior miners and explorers are outperforming gold most analysts would consider that bullish.
(GDXJ:Gold, daily, 18 months)
Of course the best of the best indicators are The Little Guys indexes themselves. Recall that on December 21, into the teeth of the malevolent tax loss selling – literally as it was peaking - we shared our thoughts about The Little Guys in a special Got Gold Report holiday offering in these pages entitled “Why We Remain Bullish on Small Mining Shares.” In that special report (which by the way received by far the largest number of unique visitors in GGR history, at times more than 350 per minute or more than 20,000 per hour) … in that holiday offering, speaking then about the CDNX, GDXJ’s Canadian cousin, we said:
“As confidently as we can say it, as Got Gold Report Vulture-in-Chief, we believe that this fantastic 2011 buyer’s strike event is certainly a good one. It already ranks as number two of all time for the CDNX and therefore is an exceptional example of exactly the kind of market imbalance we hope to exploit. It has given us the exceedingly rare opportunity to target our Guru-chosen Faves in lower-than-low blue target boxes on our Vulture Bargain (VB) and Vulture Bargain Candidates of Interest (VBCI) charts – and to actually build significant, meaningfully large positions in them in some cases.
As Vultures we cannot ask for more opportunity than that. We might get better opportunities, but we dare not even dream they might arrive or count on them arriving. This really is about as good as we can hope for. When we can repurchase shares we sold in February or March at the rate of 5, 6, 7 or even 10 shares for the price of each share we booked back then, that is a sure-enough, no question, bona fide sale price in our view. Especially when the company in question is the same or even better off than they were then.
We really cannot expect such unusually large market imbalances to last for much longer, either. That kind of fear just isn’t the norm in markets, no matter how it “feels” today, but we must also be prepared mentally for our timing to be “as long as it takes.” We don’t get to choose the timing in our chosen market, but we do get to choose to let the market tell us what that timing is. (One of the most important lessons a Vulture ever learns.)”
Just below is a small comparison chart of both the GDXJ and its Canadian counterpart, the S&P TSX Canadian Venture Exchange Index or CDNX. The signature is what we might expect to see if there was a little confidence beginning to return to The Little Guys.
(GDXJ and CDNX 2-years, daily, comparison.)
As least now, as we close out the first month of 2012, we can point to an optimistic looking, rather encouraging photograph – a snapshot of what has the potential to become the next positive liquidity event (PLE). But man alive, do these indexes ever have a long way to go to get to “Confidenceville.” A long way indeed.
(CDNX, long term, monthly, showing that The Little Guys are still being priced as they were back in 2003, when gold traded under $400 and silver under $5.)
Vultures (Got Gold Report Subscribers) know we are not kidding when we say we stuck our long Vulture necks out to layer in overly large “size” in some of our promising, Guru-chosen “Faves” in the junior miners and explorers late last year. We did that into the teeth of virtual panic in some cases and at prices that actually captured those 5, 6, 7 and even 10-for-one Ridiculous Cheap “clearance rack sale prices.” So, we welcome the more promising looking graphs above, ever mindful that no one can see the future and this is merely the possible beginning of a new PLE.
As of now it could just as easily be a wicked, suckers rally or dead cat bounce, but we believe we Vultures have two forces backing us up in our position taking. The first is that we laid in wait for Ridiculous Cheap levels to add. Ridiculous Cheap is a good place to be from, as they say, and it means we have company insiders, value bargain hunters, and deep discount “heavies” in there with us for support from time to time. The second is that we Vultures are immune to the concept of time when it comes to our positioning. If this ends up being a false breakout, for example, and yet another test of the panic lows is ahead, then we are quite simply ready for it. Our timing can be stated in Jim Rogers terms, elegantly and simply: Our timing is as long as it takes.
The thing is, as of late January, we actually do not believe this is a sucker’s rally for The Little Guys. So far, at least, is feels more like the real McCoy. Call it a hunch. For more on why please refer to our Special Got Gold Report for December 21, published on the blog as a holiday courtesy, mentioned already once above, and again here for convenience. “Why We Remain Bullish on Small Mining Shares.”
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"They didn’t make that winner’s circle for mealy mouthed cowards. You can’t buy cheap and sell dear without doing the former, you know.”
Vultures please note numerous changes in our many linked tracking charts for the Vulture Bargain (VB) and Vulture Bargain Candidates of Interest (VBCI) issues (located on the password protected subscriber pages). We continue to make frequent notations as events and conditions change.
We plan to spend the majority of this weekend doing research and preparing our question list for the many CEOs and geos on our contact list, thus there will likely not be a full GGR this weekend. However, a GGR Special Report is possible and we do intend to update all of our technical tracking charts for gold, silver, the miner indexes and important ratios by the usual time on Sunday (by 18:00 ET). Log in then to view them if you please.
Let’s call January a reasonably good month and look forward with a little optimism, shall we? That’s what the charts above suggest we do. Have a good weekend everyone.
That is all for now, but there is more to come.
