Timing & trends

Four Cycle Turns Warn of a Stock Market Top in March 2012

Mark Leibovit  – STOCKS – ACTION ALERT – SELL (Looking to Buy In A Month or Two)

What’s interesting is that the year to date has been the best start in stock indices since 1998 according to Dow Jones Newswires. As of the close today this is the 45th consecutive day without a triple digit decline. A canary in the coal mine? Today is ‘Turnaround Tuesday’, so with markets down a bit yesterday perhaps we can stage a rally today. But wait! Tomorrow is ‘Weird Wollie Wednesday’ and often either tomorrow or Thursday, according to the lore, there should be a shakeout ahead of a week from Friday’s Options Expiration. Is all of this just noise? Well, maybe not. We’re approaching that time of year when the markets often experience some form of indigestion. Yesterday, though the volume was NOT excessive, nevertheless we did volume increase to the downside. Benjamin Netanyahu spoke last night (covered sole on Fox News) before the American Israel Public Affairs Committee (AIPAC) and warned that time is running out for Iran. Folks, brace yourself. Sometime before now and the end of May, we’re likely to see a full scale confrontation unfold as the Mayans watch from the heavens. Would this be a good time to be in the marketplace? Markets don’t like uncertainty. I think the answer is no. The 50 and 200 day moving averages in the S&P 500 current sit at roughly 1323 and 1270. These are the next two potential downside targets if the S&P 500 cannot post a new high between now and the first of April. Apple, Inc. took a bit of a nosedive today. If Apple can’t rally (and it was about the only big stock doing so), the writing may be on the wall. Think about it. I can’t imagine one mutual fund, one institution, one endowment or one growth portfolio not owning Apple. Everyone now owns it, but where are the buyers should these folks decide to sell? I have avoided Apple because it is technically way, way too, extended and would only arouse my interest if it sold off back into the low to mid 400s – maybe lower. I’ve changed my mind. Time to flip to a SELL signal. Let’s see where the market is come the beginning of April or even perhaps the end of May. If the market rallies a bit higher first and you decide not to sell here, I would use that strength to lighten up. Now is a time to step aside and watch from the sidelines. I still believe there could be another big rally, but let’s revisit this market in a month or two. I am going to cash! – Mark Leibovit – for a VRTrader TRIAL SIGNUP go HERE

Four Cycle Turns Warn of a Stock Market Top in March 2012

There is a lot of cycle evidence that suggests a top is coming in March 2012. How significant a top is hard to say, but the odds are the coming decline will be at least in the 10 percent area. If this coming top is the top of Grand Supercycle degree wave {III}, then stocks will begin a decline that could retrace 50 percent or more of the market over the next several years, with large chunks of decline occurring incrementally, followed by normal 40 to 60 percent retracements as stocks work toward significantly lower levels. This weekend we will present this cycle evidence, which we believe is compelling.

First of all, the last phi mate turn date was in December, which led to a two month rally of significance. It was a major phi mate turn. March 7th is the next phi mate date, and the only phi mate turn date since that December turn. It also is a major phi mate turn, meaning its phi mate, its partner date, was also a major turn.

stock-market-cycle-top-march-2012-1

….read & view more charts HERE

How Credit Put Spreads Can Boost Your Gains and Lower Your Risk

Last month, Money Morning showed you how to use a technique called selling “cash-secured puts” to generate a steady flow of cash from a stock – even if you no longer own the shares.

It is a highly effective income strategy that can also be used to buy stocks at bargain prices.

But selling cash-secured puts does have a couple of drawbacks:

•First, it’s fairly expensive since you have to post a large cash margin deposit to ensure that you’ll be able to follow through on the transaction if the shares are “exercised.” ­Thus the name, “cash-secured” puts.
•Second, if the market – or the specific stock on which you sell the puts – falls sharply in price, you could have to buy the shares at a price well above their current value, taking a substantial paper loss.

Fortunately, there is a way to offset both these disadvantages while continuing to generate a steady income stream.

It’s called a “credit put spread” and it strictly limits both the initial cost and the potential risk of a major price decline.

I’ll show exactly how it works in just a second, but first I have to set the stage…

The Advantage of Credit Put Spreads
Assume you had owned 300 shares of diesel-engine manufacturer Cummins Inc. (NYSE: CMI) and had been selling covered calls against the stock to supplement the $1.60 annual dividend and boost the yield of 1.30%.

Let’s also assume that back in mid-January, when the stock was around $110 a share, you sold three February $120 calls because it seemed like a safe bet at the time.

However, when CMI’s price later moved sharply higher, hitting $122.07/share, your shares were called away when the options matured on Feb. 17.

That means you had to sell them at $120 per share to fulfill your call option. That might leave you with the following dilemma.

Thanks to the recent rally, the stocks you follow are too high to buy with the proceeds from your CMI sale. On the other hand, you also hate to forfeit the income you had been getting from the CMI dividend and selling covered calls.

You also decide you wouldn’t mind owning CMI again if the price pulled back below $120.

In this case, your first inclination might be to use the money from the CMI sale as a margin deposit for the cash-secured sale of three April $120 CMI puts, recently priced at about $4.90, or $490 for a full 100-share option contract.

That would have brought in a total of $1,470 (less a small commission), which would be yours to keep if Cummins remains above $120 a share when the puts expire on April 21.

That sounds pretty appealing, but…

The minimum margin requirement for the sale of those three puts – and, be aware, most brokerage firms require more than the minimum – would be a fairly hefty $8,190.

[Note: For an explanation of how margin requirements on options are calculated, you can refer to the Chicago Board Option Exchange (CBOE) Margin Calculator, which shows how the minimum margin is determined for a variety of popular strategies.]

Your potential return on the sale of the three puts would thus be 17.94% on the required margin deposit ($1,470/$8,190 = 17.94%), or 4.08% on the full $36,000 purchase price of the 300 CMI shares you might have to buy.

Either of those returns is attractive given that the trade lasts under two months – but you also have to consider the downside.

Should the market plunge into a spring correction, taking Cummins stock with it, the loss on simply selling the April $120 puts could be substantial.

For example, if CMI fell back to $100 a share, where it was as recently as early January, the puts would be exercised.

You’d have to buy the stock back at a price of $120 a share, giving you an immediate paper loss of $6,000 – or, after deducting the $1,470 you received for selling the puts, $4,530.

And, if CMI fell all the way back to its 52-week low near $80, the net loss would be $10,530. (See the final column in the accompanying table.)

All of a sudden, that’s not such an attractive prospect.

creditspreads

And that’s where a credit put spread picks up its advantage.

But selling cash-secured puts does have a couple of drawbacks:

•First, it’s fairly expensive since you have to post a large cash margin deposit to ensure that you’ll be able to follow through on the transaction if the shares are “exercised.” ­Thus the name, “cash-secured” puts.
•Second, if the market – or the specific stock on which you sell the puts – falls sharply in price, you could have to buy the shares at a price well above their current value, taking a substantial paper loss.

Fortunately, there is a way to offset both these disadvantages while continuing to generate a steady income stream.

It’s called a “credit put spread” and it strictly limits both the initial cost and the potential risk of a major price decline.

I’ll show exactly how it works in just a second, but first I have to set the stage…

The Advantage of Credit Put Spreads
Assume you had owned 300 shares of diesel-engine manufacturer Cummins Inc. (NYSE: CMI) and had been selling covered calls against the stock to supplement the $1.60 annual dividend and boost the yield of 1.30%.

Let’s also assume that back in mid-January, when the stock was around $110 a share, you sold three February $120 calls because it seemed like a safe bet at the time.

However, when CMI’s price later moved sharply higher, hitting $122.07/share, your shares were called away when the options matured on Feb. 17.

That means you had to sell them at $120 per share to fulfill your call option. That might leave you with the following dilemma.

Thanks to the recent rally, the stocks you follow are too high to buy with the proceeds from your CMI sale. On the other hand, you also hate to forfeit the income you had been getting from the CMI dividend and selling covered calls.

You also decide you wouldn’t mind owning CMI again if the price pulled back below $120.

In this case, your first inclination might be to use the money from the CMI sale as a margin deposit for the cash-secured sale of three April $120 CMI puts, recently priced at about $4.90, or $490 for a full 100-share option contract.

That would have brought in a total of $1,470 (less a small commission), which would be yours to keep if Cummins remains above $120 a share when the puts expire on April 21.

That sounds pretty appealing, but…

The minimum margin requirement for the sale of those three puts – and, be aware, most brokerage firms require more than the minimum – would be a fairly hefty $8,190.

[Note: For an explanation of how margin requirements on options are calculated, you can refer to the Chicago Board Option Exchange (CBOE) Margin Calculator, which shows how the minimum margin is determined for a variety of popular strategies.]

Your potential return on the sale of the three puts would thus be 17.94% on the required margin deposit ($1,470/$8,190 = 17.94%), or 4.08% on the full $36,000 purchase price of the 300 CMI shares you might have to buy.

Either of those returns is attractive given that the trade lasts under two months – but you also have to consider the downside.

Should the market plunge into a spring correction, taking Cummins stock with it, the loss on simply selling the April $120 puts could be substantial.

For example, if CMI fell back to $100 a share, where it was as recently as early January, the puts would be exercised.

You’d have to buy the stock back at a price of $120 a share, giving you an immediate paper loss of $6,000 – or, after deducting the $1,470 you received for selling the puts, $4,530.

And, if CMI fell all the way back to its 52-week low near $80, the net loss would be $10,530. (See the final column in the accompanying table.)

All of a sudden, that’s not such an attractive prospect.

And that’s where a credit put spread picks up its advantage.

Here’s how it works…

How to Create a Credit Put Spread
Instead of just selling three April CMI $120 puts at $4.90 ($1,470 total), you also BUY three April CMI $110 puts, priced late last week at about $1.90, or $570 total.

Because you have both long and short option positions on the same stock, the trade is referred to as a “spread,” and because you take in more money than you pay out, it’s called a “credit” spread.

And, in this case, the “credit” you receive on establishing the position is $900 ($1,470 – $570 = $900).

Again, that $900 is yours to keep so long as CMI stays above $120 by the option expiration date in April.

However, because the April $110 puts you bought “cover” the April $120 puts you sold, your net margin requirement is just $2,100 – which is also the maximum amount you can lose on this trade, regardless of how far CMI’s share price might fall. (Again, see the accompanying table for verification.)

That’s because, as soon as the short $120 puts are exercised, forcing you to buy 300 shares of CMI for $36,000, you can simultaneously exercise your long $110 puts, forcing someone else to buy the 300 shares for $33,000.

Thus, your loss on the stock would be $3,000, which is reduced by the $900 credit you received on the spread, making your maximum possible loss on the trade $2,100.

On the positive side, if things work out – i.e. CMI stays above $120 in April – and you get to keep the full $900, the return on the lower $2,100 margin deposit is a whopping 42.85% in less than two months, or roughly 278.5% annualized.

Plus, as is the case with most option income strategies, you can continue doing new credit spreads every two or three months, generating a steady cash flow until you’re ready to repurchase the stock at a more desirable price.

In this case, we say “ready” to repurchase because you’re never forced to buy the stock; you can always repurchase the options you sold short prior to expiration.

This strategy has substantial cost-cutting benefits when trading higher-priced issues like CMI, but it’s also a very effective short-term income strategy with lower-priced shares.

For example, with Wells Fargo & Co. (NYSE: WFC) trading near $31.50 late last week, an April credit spread using the $31 and $28 puts would bring in a net credit of 75 cents a share, or $225 on a three-option spread.

Since the net margin deposit on the trade would be just $675, you’d get a potential return of 33.3% in only seven weeks if WFC remains above $31 a share.

As you can see, credit put spreads are a great way to boost your gains while lowering your risks, especially in stable or rising markets.

So why not give yourself some credit.

Source http://moneymorning.com/2012/03/05/options-101-credit-put-spreads-can-boost-your-gains-and-lower-your-risk/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:customerservice@moneymorning.com” target=”_blank”>customerservice@moneymorning.com

Here’s how it works…

How to Create a Credit Put Spread
Instead of just selling three April CMI $120 puts at $4.90 ($1,470 total), you also BUY three April CMI $110 puts, priced late last week at about $1.90, or $570 total.

Because you have both long and short option positions on the same stock, the trade is referred to as a “spread,” and because you take in more money than you pay out, it’s called a “credit” spread.

And, in this case, the “credit” you receive on establishing the position is $900 ($1,470 – $570 = $900).

Again, that $900 is yours to keep so long as CMI stays above $120 by the option expiration date in April.

However, because the April $110 puts you bought “cover” the April $120 puts you sold, your net margin requirement is just $2,100 – which is also the maximum amount you can lose on this trade, regardless of how far CMI’s share price might fall. (Again, see the accompanying table for verification.)

That’s because, as soon as the short $120 puts are exercised, forcing you to buy 300 shares of CMI for $36,000, you can simultaneously exercise your long $110 puts, forcing someone else to buy the 300 shares for $33,000.

Thus, your loss on the stock would be $3,000, which is reduced by the $900 credit you received on the spread, making your maximum possible loss on the trade $2,100.

On the positive side, if things work out – i.e. CMI stays above $120 in April – and you get to keep the full $900, the return on the lower $2,100 margin deposit is a whopping 42.85% in less than two months, or roughly 278.5% annualized.

Plus, as is the case with most option income strategies, you can continue doing new credit spreads every two or three months, generating a steady cash flow until you’re ready to repurchase the stock at a more desirable price.

In this case, we say “ready” to repurchase because you’re never forced to buy the stock; you can always repurchase the options you sold short prior to expiration.

This strategy has substantial cost-cutting benefits when trading higher-priced issues like CMI, but it’s also a very effective short-term income strategy with lower-priced shares.

For example, with Wells Fargo & Co. (NYSE: WFC) trading near $31.50 late last week, an April credit spread using the $31 and $28 puts would bring in a net credit of 75 cents a share, or $225 on a three-option spread.

Since the net margin deposit on the trade would be just $675, you’d get a potential return of 33.3% in only seven weeks if WFC remains above $31 a share.

As you can see, credit put spreads are a great way to boost your gains while lowering your risks, especially in stable or rising markets.

So why not give yourself some credit.

Source http://moneymorning.com/2012/03/05/options-101-credit-put-spreads-can-boost-your-gains-and-lower-your-risk/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:customerservice@moneymorning.com” target=”_blank”>customerservice@moneymorning.com

Has the #1 Gold Timer of the Year 2011 Turned Bullish?

Todd Market Forecast for Monday March 5, 2012
 
Available Mon- Friday after 6:00 P.M. Eastern, 3:00 Pacific.
                 
DOW    – 15 on 600 net declines
 
NASDAQ COMP   – 26 on 350 net declines
 
SHORT TERM TREND  – Bearish (change)
 
INTERMEDIATE TERM TREND – Bullish  
 
     A projected attenuation of Chinese growth and renewed concerns about Greece caused a Dow drop of as much as 90 points in the early going, but about 2 hours into the trading day, the market began to come back.
    

This has been the pattern for the past few months. It has been a winning trade to buy into intraday weakness. One of these days that trade isn’t going to work anymore.
    

Today the NASDAQ Composite closed below a previous low (arrow) for the first time since mid December. The same is true for the S&P 500. For this reason, we will move to a short term sell. If this index decides to turn and move to another high, then we will have to move back to a buy.

203

TORONTO EXCHANGE:  Toronto got whacked pretty good, down 119 points.
GOLD: Gold was down 15 intraday, but manage to claw its way back. It was still down for the session.
BONDS: Bonds were down marginally.              
THE REST: The dollar was down just a bit. Not much influence on gold, copper and silver which were lower and crude oil, which was higher.
 
BOTTOM LINE:  
    Our intermediate term systems are on a buy signal.
     System 2 traders are in cash. Stay there on Tuesday.             
     System 7 traders sold the SPY at 136.86 for a loss of .07, essentially break even. Stay in cash on Tuesday.
 
NEWS AND FUNDAMENTALS:
     The services ISM number was 57.3, better than the expected 56.0. Factory orders dropped 1.0%, better than the consensus 1.6% drop. There are no important releases scheduled for Tuesday.
————————————————————————————–
We’re on a sell for bonds as of December 21.
 
We’re on a sell for the dollar and a buy for the euro as of January 18.              
 
We’re on a buy on gold as of Feb. 21.              
 
We’re on a buy on silver as Feb. 21.        
 
We’re on a buy for crude oil as of Feb. 13.      
 
We’re on a buy for copper as of December 20  
 
We’re on a buy for the Toronto Stock Exchange TSX
 
We are long term bullish for all major world markets, including those of the U.S., Britain, Canada, Germany, France and Japan.

#1 Timer of the Year

Gold timing was rated # 1 for 1997 and # 2 for 2006. Late word! We were rated # 1 for 2011.

 We were # 1 in long term stock market timing for the years 1998 and 2004 and # 4 in 2010.

To subscribe to the Todd Market Forecast go HERE

 

 

 

 

Playing the Gold, Silver Equities Selloff

sc

The Gold Report: The Global and Mail reported that more than 50 private-equity mining deals were struck in Canada in 2011—more than in any other sector. Why is private equity pouring venture capital into junior mining plays faster than any other Canadian business sector?

Stephen Taylor: The important thing is that private equity funds have the patience and the experience to take the long-term view that’s required with development-stage mining companies. There’s been a growing dysfunction in the U.S. initial public offering market for small-cap companies and development-stage enterprises of any type. It has led to depressed valuations. It’s not surprising that managers of private equity funds have the patience and see some bargains and are jumping into the sector.

TGR: Most of the deals involved minority positions, not takeovers. Why?

ST: That is really the best way to do deals as a private equity investor. These firms are looking to partner with or back experienced management teams. Experienced management teams are increasingly reluctant to cede control to an outside firm that doesn’t have real expertise in the mining sector. Trying to seek majority control would be a mistake.

TGR: What was the performance of The Taylor Fund in 2011?

ST: The fund, which has about $45 million under management, had a rough year. It was down about 20% in 2011 after a gain of 21% in 2010 and 96% in 2009. Since inception, it’s averaged just more than 26% a year versus about 9% a year for the S&P 500. 

TGR: What’s the current industry weighting of the fund?

ST: It’s about 40% invested in energy, which is mainly oil and gas. Mining comprises about 30%. About one-third of the companies are in China, another third are in the U.S. and the final third are in Canada. The Canadian component includes many companies that have substantial operations in other parts of the world.

TGR: You previously told The Gold Report that you saw some “overdone selloffs in the resource space.” Was the selloff that occurred in the latter half of 2011 overdone?

ST: It clearly was. It seemed that 2011 was particularly fierce in the junior resource space. Sharp selloffs have been followed by quick bounce-backs. Miranda Gold Corp. (MAD:TSX.V) sunk from $0.67/share to $0.24/share at year-end but has since recovered somewhat. Silvermex Resources Inc. (SLX:TSX; GGCRF:OTC) went from about $1/share to $0.36/share at year-end, but is back up to $0.46/share. 

TGR: Did the Taylor Fund add to existing positions or new positions as other investors were exiting junior mining plays?

ST: We were indeed. We were selective buyers on our core positions like Lumina Copper Corp. (LCC:TSX). We participated in the recent Anfield Nickel Corp. (ANF:TSX.V) financing. We want to be selective in our new additions, but we’re always going to be looking to quality management teams as one of our first conditions.

TGR: How long on average do you hold a position in junior mining?

ST: Typically, two to three years. Last year, we did lighten up in some names where the results weren’t what we had hoped. We lightened a bit on Fire River Gold Corp. (FAU:TSX.V; FVGCF:OTCQX) after some disappointing results.

TGR: You remain bullish on precious metals in general?

ST: As long as central governments around the world continue to print money and to telegraph a low to negative real interest-rate policy, precious metals are the place to be quite frankly. The next two quarters may be flat to sideways, but over the next two to three years precious metals are going much higher.

TGR: News about the Greek debt deal pushed the gold price up recently. Was this just a short-term uptick?

ST: The Greek debt deal is the first of many as other countries around the world will ultimately be forced to restructure their obligations as well. All of these will contribute to rising demand for precious metals and will support higher prices. It could occur in the next quarter or the next year, but I won’t be so bold as to make that distinction. I do know I want to be long on precious metals and that they’re going to be much higher over the course of several years.

TGR: Anfield and Lumina are nickel and copper plays. Do you see value in base metals? 

ST: I do. There’s a long-term secular rise in living standards that will continue for a huge portion of the world’s population in China, India and Brazil. As this process grinds forward over the next 10–30 years, regardless of short-term disruptions, there will be an inevitable increase in demand for base metals. Existing deposits also continue to be depleted. As owners of some of the largest undeveloped base metals projects in the world, Anfield and Lumina are going to be well positioned. 

Lumina is one of many Ross Beaty–related companies with which we’ve been involved. He has a tremendous record at generating shareholder value. The company has done extensive drilling on the Taca Taca property in Argentina during the past couple of years. There has also been significant historic drilling done on the project. The deposit just gets bigger and bigger. It’s close to being the largest undeveloped copper deposit in the world, if it’s not already.

That’s going to be a very valuable resource to someone. The company has indicated that it’s going to put itself up for auction at some point in the next several months. Based on transaction prices for other undeveloped copper deposits, the ultimate sale price could be in the neighborhood of $1 billion, or about $20/share. I think Lumina will be acquired or bought out in 2012 at a price in excess of $20/share.

TGR: David Strang, who is president and CEO of Lumina, was also involved in the management teams of Global Copper, Northern Peru Copper, Lumina Resources and Regalito Copper, all of which were bought by bigger players. How long before Lumina gets a takeover bid?

ST: Within the next 6 to 12 months. It’s possible that an unsolicited, unexpected bid could emerge before then, but I believe the company will begin to actively solicit bids in the first half of 2012. 

TGR: What does Lumina need to do before that happens?

ST: It just needs to continue to derisk the project. The largest elements have been done. Frankly, the deposit is so big at this point that I almost wish the company would explore creating a spin-off vehicle to hold a portion of it for further exploration and perhaps to sell down the road. 

TGR: It’s an interesting story because it’s less than 100 kilometers from the Escondida Copper Mine owned and operated by BHP Billiton Ltd. (BHP: NYSE, BLT: LON, BHP:ASX) and Rio Tinto Plc (RIO:LSE). That certainly seems like a likely dance partner. 

Anfield, which has essentially the same management group as Lumina, has a nickel laterite project in Guatemala. Anfield was assembled by Ross Beaty years ago and seems to work pretty well. Is Anfield a takeover target as well?

ST: I believe it is. This team has skin in the game. They have substantial personal investments in these companies. They also participated in the recent financing. As a side note, they also participated in the Lumina financing in November. I really respect that. It sends a very positive signal when management teams put up their own money and buy at prices that are close to what other investors paid. 

TGR: What are some of the companies that you have positions in that are developing precious metals projects?

ST: We continue to be fans of Miranda. It has a number of irons in the fire and, ultimately, one or more of them are going to hit. It did a joint venture with Red Eagle Mining Corp. (RD:TSX.V) on the Pavo Real project in Colombia. I wouldn’t be surprised if Miranda continues to pick up projects in Colombia and elsewhere. 

Red Eagle continues to drill Pavo Real. It has been able to attract some sophisticated, smart investors. I’ve heard that Ross Beaty and his group have a position slightly less than 10% in Red Eagle. That speaks volumes as to the quality of the group that Ken Cunningham, CEO of Miranda, and Ian Slater, CEO of Red Eagle, put together.

TGR: Red Eagle has two main projects, Pavo Real and Santa Rosa. Which one of those excites you more?

ST: The drill results from Santa Rosa were OK. Clearly, one hopes for a homerun. The potential for those in a place like Colombia always exists. However, I don’t play favorites. I will stand by the management team and not play geologist today.

TGR: You weren’t overwhelmed by the drill results from Santa Rosa?

ST: Don’t get me wrong. I was not disappointed by the Santa Rosa results. It’s just that I’d love to see a homerun and this was double.

TGR: Do you think it’s starting to look like a bulk tonnage target?

ST: It’s always a possibility. The company didn’t have any preconceptions. The point of the drilling program was to see what it had and which direction that would take it. It’s got some good potential there. Let’s see where the drill bit takes us.

TGR: Miranda has projects in Colombia, Nevada and Alaska. Which one is getting the lion’s share of the attention?

ST: It has good joint venture partners that are busy drilling away in Nevada, one of which is Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). But the attention going forward in terms of new developments could be additional land in Colombia. CEO Cunningham clearly has his eyes and ears open. It wouldn’t surprise me to see the company pick up some additional property there. 

TGR: You mentioned Silvermex earlier. What are your thoughts on it?

ST: Silvermex continues to do a good job ramping up production at La Guitarra. It’s slow and steady. Its stock got caught in the selloff that we talked about earlier, but it’s trudging along. 

I’m very bullish on silver. I believe that could outperform gold on a percentage basis over the next two to three years. Silvermex is a great way to play that trend. 

TGR: What’s the next catalyst for that stock?

ST: It’s going to be either the silver price and the macro developments that drive that or further delineation of its plans going forward at La Guitarra. Silvermex is getting some good drill results in some high-grade areas. Everyone’s waiting to see where it wants to go.

TGR: Does Pan American Silver Corp.’s (PAA:TSX; PAAS:NASDAQ) purchase of Minefinders Corp. (MFL:TSX; MFN:NYSE) bode well for a company like Silvermex?

ST: Clearly, Silvermex could be a good acquisition target at some point. It’s a process that will continue into the years ahead, however.

TGR: You also have a position in Largo Resources Ltd. (LGO:TSX.V)

ST: We have a small position. We like CEO Mark Brennan, Largo and vanadium. It had to do a bit of a dilutive financing to get its mine under construction. We may invest more in that name at some point, but we’re largely on the sidelines at the moment.

TGR: Do you have any final thoughts on the space for investors? 

ST: My biggest worry for a lot of these development-stage companies is governmental risk. Governments and jurisdictions around the world may get greedy when faced with the pressure to restructure their financial obligations and debt. They may attempt to take a bigger piece of the pie. That’s a risk that’s always been part of the mining business, but investors should be particularly attuned to that over the next two to three years.

Stephen Taylor is chairman and CEO of Taylor Asset Management, a Chicago-based investment management firm focusing on small-cap domestic equities and emerging markets. He also serves as a portfolio manager for the Taylor International Fund Ltd., a small-cap equity fund. In addition to emerging markets, Taylor’s area of expertise includes private equity, restructuring and turnaround situations and both small- and mid-cap companies. He has considerable experience in the natural resources and finance industries in Canada and China.

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Prepare for Rising Volatility and Gold Moving

Over the past 5 months we have seen volatility steadily decline as stocks and commodities rise in value. The 65% drop in the volatility index is now trading at a level which has triggered many selloffs in the stock market over the years as investors become more and more comfortable and greedy with rising stock prices.

Looking at the market from a HERD mentality and seeing everyone run to buy more stocks for their portfolio has me on edge. We could see a strong wave of fear/selling hit the S&P 500 Index over the next two weeks catching the masses with their hand in the cookie jar . . . again.

If you don’t know what the volatility index (VIX) is, then think of it as the fear index. It tells us how fearful/uncertain investors are or how complacent they are with rising stock prices. Additionally a rising VIX also demonstrates how certain the herd is that higher prices should continue.

The chart below shows this fear index on top with the SP500 index below and the correlation between the two underlying assets. Just remember the phrase “When the VIX is low it’s time to GO, When the VIX is high it’s time to BUY”.

Additionally the Volatility Index prices in fear for the next 30 days so do not be looking at this for big picture analysis. Fear happens very quickly and turns on a dime so it should only be used for short term trading, generally 3-15 days.

Volatility Index and SP500 Correlation & Forecast Daily Chart:

Vix1

Global Issues Continue To Grow But What Will Spark Global Fear?

Everyone has to admit the stock market has been on fire since the October lows of last year with the S&P 500 Index trading up over 26%. It has been a great run, but is it about to end? Where should investors focus on putting their money? Dividend stocks, bonds, gold, or just sit in cash for the time being??

I may be able to help you figure that out.

Below is a chart of the Volatility index and the gold exchange traded fund which tracks the price of gold bullion. Notice how when fear is just starting to ramp up gold tends to be a neutral or a little weak but not long after investors start selling their shares of securities we see money flow into the shiny yellow safe haven.

Gold & Fear Go Hand-In-Hand: Daily Chart

Looking at the relationship between investor fear/uncertainty and gold you will notice scared money has a tendency to move out of stocks and into safe havens.

Gold2

Trading Conclusion Looking Forward 3 months…

In short, I feel the financial markets overall (stocks, commodities, and currencies) are going to start seeing a rise in volatility meaning larger daily swings which inherently increased overall downside risk to portfolios and all open positions.

To give you a really basic example of how risk increases, look at the daily potential risk the SP500 can have during different VIX price levels:

Volatility index under 20.00 Low Risk: Expect up to 1% price gaps at 9:30am ET, and up to 5% corrections from a previous high.

Volatility index between 20 – 30 Medium Risk: Expect up to 2% price gaps at 9:30am ET, and up to 15% corrections from recent market tops or bottoms.

Volatility index over 30 High Risk: Expect 3+% price gaps at 9:30am ET, and possibly another 5-15% correction from the previous VIX reading at Medium Risk

Note on price gaps: If you don’t know what I am talking about a price gap is simply the difference between the previous day’s close at 4:00pm ET and the opening price at 9:30am ET.

To continue on my market outlook, I feel the stock market will trade sideways or possibly grind higher for the next 1-2 weeks, during this time volatility should trade flat or slightly higher because it is already trading at a historically low level. It is just a matter of time before some bad news hits the market or sellers start to apply pressure and either of these will send the fear index higher.

I hope you found this info useful and if you would like to get these reports free every week delivered to your inbox be sure to join my FREE NEWSLETTER HERE: www.GoldAndOilGuy.com

Chris Vermeulen