This Week’s Commentary – April 21, 2007 – Consolidation Over, Time to Buy

Well, not a great week. As of the end of last week (April 14) I was up 18.8% on the year; by the end of the day Thursday I was only up 10.4%, so a loss of 8.4% in four days isn’t great. Fortunately, Friday was a good day, and I closed Friday up 13.5% on the year; down 5.3 points from last week, but I’m satisfied.

Why am I satisfied? I’m satisfied because we are now, quite obviously, in a volatile market. In previous commentaries, and in discussions on the Buy High Sell Higher Forum, we have been waiting for the “summer” correction. So far in 2007 we have had three corrections: One that started around the second trading day of the year in January, another that lasted about four days in February, and then this one that lasted from the beginning of Tuesday to the end of Thursday.

If I am correct that the correction ended on Friday, then this should be a good week. Therefore, this is a good week to deploy some cash and pick up some bargains. To determine where the bargains are, here is a table showing many of stocks, both in the portfolio and on the watch list, with their RSI’s (Relative Strength Index):

What’s most amazing to me about this table is that most of the stocks I follow are around the 50 level, which is an excellent buy point, provided the stocks are on the way up (which after Friday, most of them are). I’m not buying stocks at the very bottom of the list (like Gold Eagle, Barrick and Mawson). I also don’t plan to do any buying of the stocks at the top of the list, on the theory that they are already higher, in relative terms, than most of their peers. (Yes, I realize that the RSI I am using does not compare stocks to each other; however, it does show which stocks have increased the fastest, and therefore may have less room to run).

Here’s a good example of what many of this week’s charts look like:

FRG.TO – Fronteer Development Group Inc. has had a pull back down to the uptrend line that started in October. The RSI at 51.79 is a perfect buy point (it’s already my biggest holding, so I don’t plan to buy more, but I’m certainly not selling at this point either). Many of my other stocks have similar looking charts, which is why I’m holding.

There are a number of stocks on this list I like, and will probably buy or increase my positions in this week. Here’s an example:

I have wanted to get back into UEX.TO – UEX Corp. for a long time, but it always looked too high. I think it is now down to a good buy point.

My cash position will decrease this week, but I expect this cash deployment to be short term, for one simple reason:

Volatility.

It appears that the markets have become more volatile, as evidenced by three short corrections so far this year. Therefore I plan to deploy cash when stocks are low, and take profits off the table quicker than I normally would. I may be down to 3% or 4% cash this week, but probably within two weeks I will be increasing back to a 10% or 20% level, or perhaps even higher. Of course if Monday and Tuesday are down days my guess will be proven incorrect, and all bets are off. Let’s wait and see.

Thanks for your contributions this week; please continue to post your thoughts on the Buy High Sell Higher Forum, and good luck this week.