HOUSTON – The ongoing bear market for the smaller, less liquid and more speculative issuers in the mining and exploration biz – like the ones represented by the Canadian Venture Exchange Index or CDNX below – has now reached 22-months in duration. That’s a very long time for a bear market, folks.
The esteemed MACD has been signaling a positive divergence for quite some time, suggesting this is a market looking for a trigger to reverse course.
The current tax loss shopping season is, of course, a headwind, but that downward pressure will end very soon.
The political uncertainty in the US is another headwind. One way or another that is also likely to be resolved in a short time period.
Remarkably, the CDNX is currently trading at a level first reached in 2002, a decade ago, when gold traded below $350 the ounce and silver was under $5. With gold now in the $1,700 arena and silver with a $32 handle, we view the current level of the Venture Index as a psychological anomaly.
Note the gargantuan divergence which has opened up between gold (shown in green) and the level of the CDNX. That tells us that sentiment for the juniors is about as bad as we have ever seen it. Even worse in many respects than in 1998-2000 or in 2008 – early 2009.
Point 1: A great deal of price risk has been removed from the better junior miners and explorers. The sub-sector is a bargain target rich environment.
Point 2: Bear markets do not last forever. A 22-month bear is a very, very long period bear.
Point 3: The cure for negative liquidity is negative liquidity. Prices become so low that insiders, deep discount specialists and Vultures with long term time horizons are willing to accumulate in size. They believe that markets are cyclical and it is only a question of time before the better juniors once again become more popular.
Point Last: Tax loss selling and fiscal cliff worries are about to end very soon. Junior company prices are, in many cases, Ridiculous Cheap (a GGR technical term). Absent an unforeseen black swan event, the CDNX is primed for a major reversal of epic proportions in our view.
Possibly in line with or even exceeding the 2009-2010 bull which followed the 2008 Panic.
No one can know in advance when a great bear market will reverse course into the next bull. With at least two of the major headwinds facing the CDNX now about to end, however, there is a legitimate chance that a new bull market for The Little Guys is about to get underway early next year.
We certainly hope so. We have been taking advantage of the tax loss shopping bargains recently – in kind of a big way – and, we have a lot of mouths to feed here at the ranch in Texas.
(Some of the "livestock" next to the barn at the ranch December 9, 2012.)
Stay tuned for a brief comment on a number of the tax loss shopping season super bargains we have taken advantage of in the past few weeks – already shared with GGR subscribers – to be posted here in the next while. Until then...
Happy Holidays!