According to Thackray’s 2010 Investor’s guide, the S&P Metals and Mining Sector has a period of seasonal strength from November 19th to May 6th. The trade has been profitable in 14 of the past 20 periods. Average return per period was 13.8%. Average return per period exceeded the S&P 500 Index returns by 7.9%

The sector has a seasonal sweet spot between January 29th and May 6th. The trade has been profitable in 13 of the past 20 periods for an average return per period of 6.3%.

Chart courtesy of Brooke Thackray

Strength during the period of seasonal strength can be attributed to rising demand and prices for basic commodities including copper, zinc, nickel, steel, iron ore, silver and platinum.

Technical influences

Chart courtesy of StockCharts.com www.stockcharts.com

The TSX Global Mining ETF has a mixed technical profile. Intermediate trend recently changed from up to neutral when the Index fell through support at 98.39. The Index has dropped 12.3% since its high two weeks ago. Short term momentum indicators are trending lower and already are oversold. However, they have yet to show technical signs of bottoming. Strength relative to the TSX Composite Index is negative and has not shown technical signs of recovering.

Fundamental influences

Earnings growth prospects in 2010 are exceptional. Demand for materials is expected to accelerate as spending from economic stimulus programs announced by the world’s largest nations last year start to focus on infrastructure programs. Planning and engineering have been completed. The shovels for many of these programs go into the ground this spring. Prices of basic materials including copper, zinc, lumber, steel, iron ore, silver and platinum are expected to continue their uptrend from depressed 2009 levels.

The Bottom Line

The seasonal trade in the sector is lining up nicely this year. A refined technical entry point has yet to appear, but likely will arrive shortly. ETFs in the sector include the Claymore S&P/TSX Global Mining Index (CMW), BMO S&P/TSX Equal Weight Global Base Metals Hedged to CAD Index (ZMT), the Horizons double leveraged HBP S&P/TSX Global Base Metal Bull Plus ETF (HMU) and the S&P Metals & Mining SPDR (XME).

…..read more HERE on the opportunities in the Oil Equipment and Services sector and the Materials Sector.

You can check out Don Vialoux’s Long Term Forecast at January 22,23rds

Don Vialoux has 37 years of experience in the Investment Industry. He is a past president of the Canadian Society of Technical Analysts (www.csta.org) and a former technical analyst at RBC Investments. Don earned his Chartered Market Technician (CMT) designation from the Market Technician Association in 1995. His CMT paper entitled “Seasonality in Canadian Equity Markets” was published in the Spring-Summer 1996 edition of the MTA Journal. Don also has extensive experience with Exchange Traded Funds (also know as Index Participation Units) as well as conservative option strategies. In 1990 he wrote a report that was released in the International Federation of Technical Analyst Journal entitled “Profiting from a Combination of Technical and Fundamental Analysis”. The report introduced ” The Eight Phases of the Stock Market Cycle”, an investment concept that continues to identify profitable entry and exit points for North American equity markets.   He is currently a member of the Toronto Society of Fundamental Analyst’s Derivatives Committee.   Now he is the author of a daily letter on equity markets available free on the internet. The reports can be accessed daily right here at www.dvtechtalk.com.

THE TECTONIC SHIFT: GLOBAL RESOURCE NATIONALISM

Last Tuesday evening the “Cosmic Tectonic Shift” occurred in American politics.  I had just finished my keynote address on the inevitability of the Death of the Dollar’s Reserve Currency Status – also a seminal world event. In Massachusetts a young preppy Republican pulled off the unthinkable – defeating Attorney General Martha Coakley in a bid for the venerable Senate seat of Ted Kennedy.  This defeat not only changed calculus of consent in Washington, but it also punctured forever the myth that this is change “we can believe in.” 

Here’s my take.  This tectonic political shift will impact many of the current issues facing the country. For example, we are working with the elected officials in Virginia and numerous Congressmen and Senators in Washington DC to educate and focus on the growing importance of North American resource development.  Why, you ask, are North American resources an issue?  Well take a look at China.  She has forged into the Canadian resource markets. Jilin Nickel, for example, invested for a 75% stake in Goldbrook Ventures. Please see Chris Berry’s essay on China’s new capitalism in this issue of Morning Notes. Harp Capital, a Canadian company I advise, recently completed a US $50 million iron ore deal between a Korean company and a Canadian iron ore resource in Labrador (please see the Harp Capital web site).   Just look around the world at countries like Ecuador, Bolivia, Venezuela, Pakistan, Russia … and on and on.  Even China is now tying up commodities and other valuable assets everywhere she is able. Countries are now realizing the importance of their domestic resources and they are moving to restrict Western development.  It seems that only in the United States have we become hostage to the small but effective environmental lobby.  This recent tectonic shift will change all that.  It will happen over time dear Discovery Investor, but it will happen.

is in favor of the project and that a National Science For example we believe that the strategically important Cole’s Hill uranium deposit near Chatham, Virginia must be developed.  Here the United States has a resource of 119 million pounds of uranium that can be safely and economically extracted.  More to the point, it will provide jobs.  Given this tectonic shift jobs have overtaken the company invested in the project is Virginia Energy Resources Inc (VAE TSXV).   We believe that the new Governor of Virginia, Robert MacDonald ®Foundation study in progress will be positive.

Similarly northern Arizona’s uranium breccia pipes, discovered by Quaterra Resources (QMM AMEX) and those owned by Denison, will also be developed eventually.  I hope to visit with Arizona officials during the Cambridge Symposium next week in Phoenix.

Revett Minerals’ (RVMIF OTCBB, RVM TSX) world class ore body at Rock Creek (North Western Montana) will also be developed because jobs are trumping almost everything else including global warming – at least according to recent Pew Polls and discussions with various governors and Senators.

Soon, very soon, Washington will awaken to the reality of the new shift. The current Administration is trying now to re-triangulate (to use a Clintonian expression).  It will be most interesting to watch Wednesday’s State of the Union message from the President to see if he sees the reality and totality of this Shift.  

Finally, I am convinced that the current reserve currency status of the US dollar, particularly its sole reserve status, is no longer in the best interest of the U.S. or the world. For far too long our elected and appointed officials have relied on the reserve currency status to finance the quality of life in the US.  In my opinion, that is likely to end within a few years, ushering in a very new and different world order.  We should all be preparing for this eventuality now in our discovery ventures.

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Dr. Michael Berry is a pioneer in the emerging field of “discovery investing.” He researches and writes on companies that focus on discovery in natural resources, high technology and biotech.
Previously, he successfully managed small and mid cap value funds for Heartland Advisors and Kemper Scudder.
While at the Darden School, University of Virginia, he was a professor of investments and has held the Wheat First Endowed Chair at James Madison University. His research in the study of behavioral strategies for investing has been published in numerous academic and practitioner journals.

He publishes Morning Notes by Michael A. Berry, Ph.D. The notes discuss geopolitics and their effect on capital markets.

Are Commodities and the Dow Index Dead?

It was a heart pounding week on Wall Street as traders and investors locked in profits during 2010’s first round of earnings season. While it is normal to see selling of shares after good news hits the market, last weeks melt down was over exaggerated and for good reasons.

In short, we expected good earnings and that is why the markets have been crawling higher the past couple months (buy on rumor, sell on news). But what made last weeks sell off so strong was the fact the market was way overbought on the short term time frame and looking ready for a correction already. So we saw twice the selling pressure crammed into one week.

Looking back at a 12 year chart of the Dow Jones Industrial Average we can see the market is now trading at a major resistance level. There are two scenarios the market will likely follow in the coming 12 months. And it could take a year for each of these scenarios to unfold.

Scenario #1 – The market could top then start heading lower to test the 2009 March low. I don’t want this but it could still happen. Topping is a process. Unlike most bottoms which happen very quickly, tops tend to drag out much longer. In this case I figure we are looking at 4-12 month time frame for the market to truly roll over and confirm that we are in a major bear market again.

Scenario #2 – If the market holds up relatively well and forms a bull flag then we can expect to see higher prices in the future. If this happens it will take 4-12 months to unfold also.

Both scenarios have characteristics associated with them, so as the market progresses I will update on the market internals which will help tell us if the underlying market is holding up well or deteriorating. Only time will tell and we will play it one candle at a time.

Gold Stocks – Rockets or Rocks?

The gold stock index closed below its support trend line which held up for over a year. This is not a good sign for gold or gold stocks but there is light at the end of the tunnel.

Simple technical analysis is telling us to be cautious at these price levels. If we zoom way out on the charts the current price level and chart patterns on these charts scare me. The gold stock/Gold ratio chart is trading under resistance and the HUI (gold stock index) is trading near the 2008 high. What I do not like is the technical breakdown on the HUI monthly chart. You can see the trend line break on the chart with my small zoomed in picture.

The good news is that everything looks to be extremely over sold on the 60 minute charts so I am expecting a bounce across the entire market for a 1-5 day dead cat bounce. Friday we did see gold stocks move up strong off their lows out performing the price of gold. This is positive for gold and stocks. Depending on how that unfolds we could take a short term momentum play to profit from a possible leg lower.

Precious Metals ETF Daily Charts – Gold & Silver

Gold and silver lost some shine last week as they plunged towards their next support level. A bounce is expected but then I feel we are heading lower and this will likely shake out the majority of traders before starting another rally higher.

On Jan 13th I posted a report indicating gold and silver were headed lower because of the recent price action as silver and gold both had a Pop & Drop chart pattern with heavy selling volume on the 60 minute chart: http://www.thegoldandoilguy.com/articles/commodity-gold-futures-trading.

Energy Fund Trading – USO & UNG

I am really starting to like USO for an oversold bounce off support. I would like to see the market reaction on Monday before we do anything. With everything closing near their lows on Friday, panic selling from fear may creep into the minds of traders and investors.

Natural Gas fund looks to be setting up a bull flag. It will be interesting to watch this progress.

Commodity and Stock Market Index Trading Conclusion:

This month looks and feels like last Jan – March, but reversed. The market is now getting choppy as the bulls and bears fight for direction making is difficult to swing trade. Times like these are best for intraday traders, not swing traders. Trading tops is actually much more difficult than trading a bottoming market in my opinion so I will be picky with trade setups. My number one goal is to preserve capital and avoid choppy market conditions as part of managing risk.

Final trading thoughts, I look for the broad market to get a possible bounce this week, but I feel lower prices are still to come. The USO oil fund looks prime for the picking and that could be our next trade.

If you would like to receive my Free ETF Trading Newsletter visit my website HERE

My name is Chris Vermeulen, founder of TheGoldAndOilGuy newsletter. I provide you with unparalleled trading newsletter with charts, signals and email support. Unlike other investing newsletters, I’m a one man show. That’s because I don’t want some hired hand giving you advice while I take it easy on a beach somewhere. You ALWAYS get precise, valuable information DIRECTLY from ME.
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