VB Update Notes for July - August 2012 – No Help Yet
HOUSTON – It’s a good thing that bear markets do not last forever, but darn if they don’t feel like they do in real time or in the heat of battle so to speak. The chart below ought to be familiar with Vultures. And it just hit a new bear market milestone.
As of July 13 the Canadian Venture Exchange Index or CDNX has retreated even further, to levels first reached way back a decade ago, in 2002. That’s right. Back when gold was struggling to hit $350 and silver was well under $5 the ounce.
Is that ridiculous with gold showing a $1,500 handle? ... Well, yes, it is. Last time we said:
The worst bear markets can last far longer and do more damage than all but the most grizzled veteran Vulture traders are mentally prepared for. That applies to even the Big Miners as we have all seen, but smaller, less liquid and more speculative issue bear markets can take that same idea to wild extremes.
Welcome to “Wild Extreme-ville.” And it may not yet be over if the usual seasonal influences we see in July and early August, heaped on top of a protracted buyer’s strike, are in play.
The negative action is not merely confined to The Little Guys, however. Last month, with an apparent “V” shaped bottom looking formation evident in the much larger, Big Cap Miners that populate the AMEX Gold Bugs Index or HUI we were fairly optimistic that miners of all stripes, big, medium and small, may have shown us a May bottom. This was the graph we shared of the HUI a month ago. Below it is the same graph updated through July 13.
We may still have seen a May bottom. The HUI has not cut a new lower low. Not yet at least, but the Big Miner index is at least giving the bears another good time in July so far. Our hopes for the kind of “help” we have been expecting to arrive were apparently premature as that bearish looking chart looks more likely to test the lows than to run hog wild to the upside just yet.
Recall that we also looked at the CDNX’s ‘larger’ cousin, the Market Vectors Junior Gold Miners Index ETF or GDXJ which was also then showing a promising “V Bottom” looking formation following a cascade style historic sell down. The 56.9%, 14-month drubbing for the small and mid-tier miner ETF, (GDXJ), is so far the largest ever bear market for the young ETF. Just below was the chart of the GDXJ a month ago followed by the same chart updated through July 13.
Well, so much for a “V Bottom.” At best now we are looking for a higher turning low for the balance of July as this Little Guy bear grinds on. We actually said a month ago: We haven’t overlooked the fact that this is June which is typically a month of poor price action and even poorer liquidity for The Little Guys ... We haven’t overlooked the fact that volume for the CDNX remains abysmal, more in keeping with a buyer’s strike than a more friendly volume reversal. But we do try to keep in mind that buyer’s strikes and extended periods of very low volume are when some of the best buying ops arrive.
Yep, June, and at least early July ran true to form and we remain smack dab in the middle of either the best or the second best buying op of all of our trading careers when it comes to the small, less liquid and more speculative junior miners and explorers.
Yep, we have been presented with buying ops out the “wazoo,” and, as our DJ friends might say, “the hits just keep on coming!”
No question about it. This is the “Second Coming of the Market From Hell,” as we said in June. It is a sure-enough world class Negative Liquidity Event (NLE) – the kind that eats and digests even the more stalwart of Little Guy traders -- outlasting even many grizzled Vancouver veterans, but not Vulture Speculators. At least not this Vulture Speculator.
High Volatility = High Risk = High Opportunity
As we said last time: We do try to keep in mind at all times that The Little Guys are some of the most volatile, most dangerous stocks to trade there are. But, having done this Vulture Bargain Hunting gig for longer than we care to admit, we can hunker down and weather protracted, brutal, wicked, seemingly insane bear market Negative Liquidity Events (NLE’s) with the best of them.
Vultures are not run off or beaten by mere bear markets. Not even the second worst one of all time (so far). Oh, we are hunkered down all right. We are in our figurative bunkers, but we are not idle in them. We lay in wait for what we believe are Stupid Cheap (SC), Ridiculous Cheap (RC) and now “Idiot Cheap” (IC) prices, as they are offered to us from time to time.
As Long as it Takes
We buy the FEAR and PANIC of others, building meaningful-sized positions in our Faves in preparation for when the Market From Hell is over. For the time when small resource company (SRC) gamers are buying today because they fear that prices will be HIGHER tomorrow, not selling today because they FEAR prices will be lower tomorrow. (Remember when it was like that a couple years back?)
And in case we haven’t mentioned it enough so that it has become rote, our timing for our Little Guy positions is simply as long as it takes.
We Vultures are convinced that there is tremendous value and opportunity in the companies we attempt to game – at the prices we build our positions. Companies which have been mistreated to extremes by a fearful, uncertain market... and so on. By now everyone reading this knows the drill. Everyone knows that these super bear opportunities are rare and we may only get a few of them to work with during our trading careers. We simply have to make the best of them with the amount of capital we have devoted to this high risk, high reward space.
From ‘All In’ to Back in the Game
From a Vulture point of view, it doesn’t get very much better than this, in terms of volatile opportunity. But with all the many opportunities coming our way and most of our dedicated resources already deployed, we faced the prospect of not having enough ammunition if this fantastic buyer’s strike continued to grind on for an even longer period than all past NLE’s. (This one is already the second longest since the Great Gold Bull began in 2001.) What if this one is bear granddaddy of them all?
Recall in our June Vulture Bargain (VB) Update we had then decided that we were for all intents and purposes “all-in” for smaller companies we call The Little Guys. We said specifically then, after selling a little of our gold in the $1,640s in May to increase our Little Guy ammunition for the second time since December: We are unlikely to increase our firepower again for this space, unless the buying gets so incredibly cheap that we just cannot resist it and then we’ll think long and hard before we sell any more metal or sell something else to add more of the miners or explorers.
Since then we have changed our mind and have already sold a little more of our gold over the past month and intend to sell a bit more in the coming week, as we mentioned in some of the Subscriber charts and on the welcome page of the Subscriber web site. We did think long and hard about it and we didn’t like the prospect of not being able to add shares of our most interesting Faves -- in the event they get driven down to Idiot Cheap by another kamikaze seller coming in hot and heavy into a weak bid with too many shares too fast.
Right, wrong, win or lose, we have made the decision to take on a bit more risk in exchange for being able to pounce if and when we are presented with what we view as one of the best opportunities we have ever seen (a high bar to reach before we use these precious bullets) -- in companies like Riverstone Resources (RVS.V), Timberline Resources (TLR), Millrock Resources (MRO.V), Mega Precious Metals (MGP.V), Guyana Goldfields (GUY.T) and too many other beaten up and bloody issuers to name them all.
In making this turnabout we reason that if it turns out that the gold funds are not needed, then we can always buy gold with them in the future. And, having the ammunition on hand sure will make the Vulture Bargain Hunting a lot more fun.
We have already increased the amount we devote to The Little Guys by a fairly large amount by our own standards, but goodness, we didn’t expect to be given so many delicious buying ops. We have to marvel that some of the company market caps have actually been trading down to below cash equivalent resources in their respective treasuries. It would be no fun at all to see that unfold on our Faves and not be able to at least put on a modest, but respectable stake.
We figure that even if the world plunges into another 2008 abyss, it will want gold and silver above all other assets. By extension then, sooner or later the people of the world are also going to want the promising companies that are looking for, developing and producing precious metals too. Won’t they?
Sure they will. We will count on it. It’s a good thing that bear markets don’t last forever even if they seem like they do in the heat of battle, in real time.
Let’s pause here and move directly into the Vulture Bargain (VB) Roundup update for July- August, 2012.
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As always, the first place to look for new commentary is directly in the charts themselves (available to Subscribers). As we have been saying frequently in these reports, moving forward the charts will become more and more the focus and these formerly too-long written reports less and less the focus.
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