Wednesday, January 18, 2012

Small Canadian Mining Shares Index Flirts with Important Breakout

HOUSTON – The S&P TSX Venture Exchange or CDNX grabbed a tiny amount of chart real estate just above one important technical line in the trading sand on Wednesday, January 18.  With a modest 12-point advance to 1,550  the index, which tracks a basket of some of the smaller, less liquid and more speculative junior miners and explorers, mostly based in Canada, managed to peek just above the 50-day moving average which is currently crossing 1,530.

20120118-CDNX-graph

CDNX, 14 months, daily.  If any of the images are too small click on them for a larger version. 

Continued…

The 2011 47% correction for the CDNX is the second largest correction for The Little Guys index, ever, second only to the horrific 2008 Crash which ended in December of that year and loped off a bone-crushing 79.9% of the CDNX value. 

Volume remains subdued, as it has for most of the correction. However, in late December and a couple of days last week there were days where the volume perked up a little, to over 100 million shares per day as shown in the CDNX graph above. 

What has our undivided interest at the moment is that the CDNX has turned in at least the possibility of a higher turning low (1,398 in December), up about 7% from the nasty panic-inspired capitulation spike in October as low as 1,305.  What makes that a bit more impressive than usual is that the modestly higher low occurred into the teeth of a very strong tax loss selling season.  Recall that we recently posted a group of charts of some of the micro-cap  issues we follow showing their improvement since the end of that artificial tax loss negative liquidity (see January 13 post).  

In order for the newest low to qualify in our own ‘rule book’ as a turning low, the CDNX still has to print a higher high from the relief bounce to 1,675 in early November.  Merely re-crossing the 50-day alone is not enough and at these beaten up levels is not really all that impressive – yet.  We, and probably a lot of people like us, will become more convinced of a change in trend if the CDNX manages to show a higher high than the November specimen.  So far, so good, but The Little Guys have a lot of work to do as we go into the winter conference season just ahead. 

We note that the CDNX is within striking distance (about 35 points or 2.3%) of moving above a 10-month downtrend line with origins in March of last year. Since that October nadir, the CDNX has been consolidating in a tightening triangular pattern and the higher December low, with the support of the momentum indicators, adds to our near-term guarded anticipation.  Having said that, we note optimistically that The Little Guys have been outperforming their larger, better capitalized cousins represented by the AMEX Gold Bugs Index, or HUI just recently, as the graph below reveals.

20120118-CDNX-HUI-Perf-Ratio
 
CDNX:HUI Ratio, 30-months, daily.  Click on the image for a larger view.   

When the smaller, more speculative juniors are outperforming the Big Boys of the mining biz, that’s usually a very bullish sign.  Out of an abundance of caution, however, we have to note that the HUI has been held back just recently by significant, high percentage toe-stubs by Hecla and Kinross, representing 4.14% and 3.85% of the HUI Index respectively.  So the performance results are a little better than they would otherwise have been, probably. 

Still, we have to be optimistic when we look at the U.S. counterpart to the CDNX, the Market Vectors Junior Gold Miner’s Index ETF or GDXJ (which also happens to be our 2012 Top Pick for Steven Halpern’s TheStockAdvisors.com portal on MSN, chosen in December).   The late December low of $22.58 represents a 44% correction for that new vehicle, but Wednesday’s close of $27.04 actually crossed two technical lines in the trading sand – just above the 50-dma and a peek above an August – December downtrend line.

20120118-GDXJ-chart
 
GDXJ, 2-years, daily. 

Note the positive divergence in the MACD from October through December.  Today we learned though multiple sources that we were joined on the long side in GDXJ by Mr. David Einhorn, who manages the Greenlight Capital investing empire he created.  Mr. Einhorn mentions the Market Vectors Gold Miners Index (GDM, for the larger gold companies) in his year-end letter  but multiple sources confirm he also took a considerable stake in The Little Guys via GDXJ. 

We consider that as being in good company.  Welcome aboard, David.  Don’t be a stranger. 

That is all for now, but there is more to come. 


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The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter


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