Buy-High-Sell-Higher.com

Continuing my series of irrelevant quotes at the start of my commentaries:

Hey listen here,
Now I got mortgages on homes
I got stiffness in my bones
Ain’t no beauty queens in this locality. (I tell ya!)
Oh, but I still get my pleasure
Still got my greatest treasure.
Heap big woman you done made a big man out-of me!
…………..
Fat bottomed girls you make the rockin’ world go round

- Queen, Fat Bottomed Girls

 

My 20% gains on the year have evaporated, and as of today I am flat on the year, which is not much to show for almost 5 month’s work. As I said last week, at these rates of return I should have put my money in T-Bills in February and taken the last three months off.

But I didn’t. And I’m not. Here’s why:

First, I still believe that there is profit to be made in the uranium market. Nuclear power is the only existing solution to global warming, the energy needs of the industrializing countries like India and China (and North America), and the solution to global political instability (without a need for oil, the U.S. would not be in Iraq). Uranium is not going away anytime soon.

Second, as discussed last week, we have seen numerous significant consolidations in the uranium market all the way up. The action over the last few weeks is not unusual. In fact, if you read some of the posts on the on the Buy High Sell Higher Forum, it was even expected (Check out davidslane’s post on May 18, and adriandunn’s post on May 22).

Third, the world is starting to take notice. Funds are starting to invest in the uranium sector (which explains CCO.TO Cameco Corp’s big rise, even though their mine is flooded and they have no production in near or medium term future). Uranium futures are now being traded on the NYMEX, which also increases visibility. More press coverage means higher prices as the lemmings pile in, at least in the short to medium term. (Long term these newcomers are who we will be selling to).

Fourth, it is increasingly likely that we are approaching a bottom. Check out the chart of FRG.TO - Fronteer Development Group Inc. for the last six months:

A low of $12.37 was made on May 17, and then the stock rose and fell back down to an intra-day low of $12.74 on May 24, before rising to close yesterday at $13.10. These levels are remarkably close to the last intra-day low of $12.15 on February 27. In other words, this recent consolidation did not break the February 27 low, and the May 24 low did not break the May 17 low. A series of higher lows is a good sign, and could indicate that we have reached a fat bottom.

(Yes, I know, there is no such term as a “fat bottom”. The technical analysts would call it a double bottom, and it generally indicates the start of a reversal of the previous trend. You can learn more and see an example in the double bottom article at stockcharts.com. However, I like the term “fat bottom”, because that’s what it looks like, and it ties nicely into the irrelevant quote I put at the start of this article).

Fronteer is not to only stock showing this pattern; I’ll let you search for your own examples.

Of course this could be merely a blip, and we may very well see further lows. However, as I said last week, I will continue to deploy more cash in the hopes that I’m right.

Crosshair - New (Old) Recommendation

Speaking of fat bottoms and deploying cash, I have started accumulating an old friend, CXX.V - Crosshair Exploration & Minining Corp.

As the chart shows it would appear the downtrend has been broken, and it appears that a fat bottom has been made around the $2.60 level. (See, that term “fat bottom” is starting to catch on). In addition to now trading on the AMEX, which increases exposure, on May 24 Crosshair announced decent drill results, which unfortunately were overshadowed by the big correction on Thursday (thanks to Forum member dangor2 for mentioning this). Finally, as mentioned on the Crosshair web site, “Crosshair continues to also advance its gold and Volcanic Massive Sulphide (VMS) projects in Newfoundland, which are slated for a dividend spin-out to shareholders in the 2007 fiscal year.”

I like it, and I have taken a small position, which I plan to increase if the stock moves to the upside.

Cool Web Site

Thanks also to forum member davidslane for posting a link to the Resource Stock Guide web site, which contains detailed information on virtually every resource stock out there, including gold, silver and uranium stocks. As davidslane says, there is almost too much information on that site, and he asks others for their thoughts on how to utilize this information, so please take his suggestion and post your thoughts on how this information can best be used. The point of this site is to use our collective brains to make us all more money, so let’s use them!

The Week Ahead

I plan to continue this week what I did last week; slowly accumulating more of the good stuff while it’s low. Last week, in addition to buying some CXX.V - Crosshair Exploration & Minining Corp., I picked up a bit more of PNP.TO - Pinetree Capital Ltd., a bit more MGA.TO - Mega Uranium Ltd. , and I started buy UEX.TO - UEX Corp. and UUL.TO - Universal Uranium Ltd. I haven’t written up those last two stocks, so time permitting I’ll post some further thoughts this week.

Thanks for reading, and thanks to all of you who share your thoughts on the Buy High Sell Higher Forum; good luck this week, and let’s hope that we have indeed seen some fat bottoms.

……….If our old friend Mr. Dines was writing this week’s commentary, is this what he’d be saying?…………..

 

The phrase “Tread a woorme on the tayle and it must turne agayne” was first recorded in John Heywood’s 1546 collection of English proverbs, meaning that even the most humble of creatures will try to counteract rough or unfair treatment.

Shakespeare picked up the thought in Henry VI, Part 3, where Lord Clifford urges the king against ‘lenity and harmful pity, saying:
To whom do lions cast their gentle looks?
Not to the beast that would usurp their den.
The smallest worm will turn being trodden on,
And doves will peck in safeguard of their brood.

As time has passed, the phrase has evolved from a description of a lesser creature’s revolt to a much broader meaning that the situation has changed, as, for example, in this quote from the New York Times in 1994: “The day was one long, sometimes poignant reminder of how the worm has turned for Mr. Cuomo–whose approval ratings now lag Mr. Clinton’s in the state by 10 percentage points”

Back in 2000 we advised our loyal subscribers that the worm had turned, leading you out of internet stocks and into natural resource stocks, particularly uraniums, for which we are grateful. But over the past few weeks uranium stocks have pulled back from their multi-year highs; has the worm turned again?

…………………………………………………….

Okay, enough ramblings about Mr. Dines and Olde English sayings…….

However, the question is valid; has the worm turned?

My 20% gains on the year have evaporated, and as of today I am only up 3.4% on the year, which is not much to show for almost 5 month’s work. At these rates of return I might as well put my money in T-Bills and eliminate all risk. Had the week ended on Thursday I would have been flat for the year; only Friday’s big uptick has kept me in the black.

Which again begs the question (since I know you all love it when I beat an analogy to death): Was the action up to Thursday the worm turning from the gains of the past two years, or did the worm turn on Friday, signaling an end to the consolidation?

Here’s a chart of FRG.TO - Fronteer Development Group Inc. for the last two years:

As you can see, the stock peaked at $8.04 on April 19, 2006 and then took 55 days to fall to an intra-day low of $4.10 on June 13, 2006. Of course, from there, it was onward and upward.

An all time high was reached at $16.90 on April 9, 2007, before falling to an intra-day low of $12.37 on May 17 (Thursday).

If past history repeats itself, which it never does, Fronteer’s bottom should be 55 days from the top, and down 50%, which would put it at $8.45 on June 3. On Thursday Fronteer had fallen 27% over 38 days, which means that all of my complaining about how I haven’t made any money is nothing compared to the drop we experienced at exactly this same time last year.

I don’t have records of my portfolio value every day last year, but I can tell you that from April 30, 2006 to May 31, 2006, one month, my portfolio dropped by 27%. I lost 27% in one month, and yet one of the purposes of this site is for me to feed my ego by bragging about how brilliant I am. Why? Because last year, for the entire year, my portfolio was up 94%. My point: the stock market is a dangerous game, and resource stocks are more volatile than most, so it is possible to suffer a 27% loss in one month and still gain 94% on the entire year.

Will this happen again this year? I have no idea, but past history proves it is possible. Look at the Fronteer chart again. The bottoms in 2006 and perhaps 2007 coincide with RSI levels around 30, so it is possible we are near a bottom.

Want another example?

On April 11, 2006 PNP.TO - Pinetree Capital Ltd. peaked at $5.43, and then dropped over the next 37 days to an intra-day low on May 18, 2006 to $3.25, a 40% decline. On April 10, 2007 Pinetree made it’s intra-day high for 2007 at $16.15, and then bottomed, 37 days later, at $11.71 on May 17, 2007, a drop of 27%.

Weird, eh? (Editor’s note: for those of you who are not Canadian, “eh” is a Canadian expression that we put at the end of every sentence to determine if you are in agreement with what we are saying, and to see if you are still listening. It was popularized by Bob and Doug McKenzie, who are enjoying something of a renaissance, but that’s another story for another day).

Weird, in that both last year and this year it’s been 37 days from peak to valley, although the drop last year was more severe.

Here, then, are my conclusions:

First, this is a volatile market. A drop of 27% or more is normal. It’s happened before, and it will happen again.

Second, it is possible that we are at the bottom, or close to it. Last year there was a much more pronounced bottom, almost a crash, that happened relatively quickly. The drop has not been as severe this year, but one could argue that the uptick was also not as pronounced. Why? Perhaps it’s because more investors are in this market, including some institutional investors, which may smooth out the peaks and the troughs.

Third, it amazes me that the bottom for Pinetree was achieved on May 18, 2006, and it is possible that a bottom was also achieved on May 17, 2007. I guess I should take back my comments about history never repeating itself!

The argument can convincingly be made that the bottom won’t occur until early June, given that it can take up to 55 days to go from top to bottom, as we saw with Fronteer last year, which means we may not yet be at a bottom. However, as we saw with Pinetree, 37 days is also possible, which means we are already there.

My guess? We are there. This is the bottom.

I am currently sitting on 19% cash, the largest cash component I have held in two years, primarily because I didn’t want to be fully invested at the bottom. I have cash, so I plan to deploy half of that cash this week, and if we continue on the upside I will deploy the rest in early June.

Monday is a holiday in Ontario, so for stocks trading on the Toronto Stock Exchange we won’t know until Tuesday whether the upward trend will continue, but I’m guessing that it will.

What will I be buying? More of the larger stocks, like PNP.TO - Pinetree Capital Ltd., SXR.TO - SXR Uranium One, Inc., and PDN.TO - Paladin Resources Ltd. because I think the larger stocks will benefit more from new investor interest. However, I will also be keeping an eye on the smaller ones, which have the most potential as the industry consolidates.

Thanks for reading, and thanks to all of you who share your thoughts on the Buy High Sell Higher Forum; good luck this week.

The volatility continues, mostly to the downside.. Last Friday I was up 9.4% on the year; today I’m up 8.3% on the year, so it was a losing week, thanks mostly to the action on Thursday.

I currently hold seventeen different stocks in my portfolio. This past week three of them were up, meaning 14 of them fell. That’s not a great week.

My biggest winner was DML.TO - Denison Mines Corp., which was up over 15% on the week. Denison currently represents 7% of my portfolio, and it’s this over-weighting that saved me from suffering more damage.

As the chart shows, the MACD is still at a good level, but the RSI is a bit toppy, even after Friday’s pullback, so this one is a wait and see. Have we reached a double top? Or is this just a pause before we move higher? We will know this week. For now, I’m holding.

My only other two winners were PNP.TO - Pinetree Capital Ltd. and SXR.TO - SXR Uranium One, Inc., both of which look as though they have consolidated to what may be appropriate buy points.

So what does this mean? Why are Denison, Pinetree and SXR all on the rise? What’s different about these stocks as compared to my other stocks that were down this week? (I’ll pause while you consider the answer…….)

It appears to me that these are all “large” stocks, with both Denison and SXR actually in production. To test this theory, I examined the performance of other “large” uranium stocks this week, and low and behold, they were also up. Check them out:

• CCO.TO - Cameco Corp. - up 2% on Friday, and up .79% for the week (and up 8.71% over the last month).
• URRE - Uranium Resources Inc. - up 1.36% on the week, but down 1.3% over the past month.

Some of the other “close to production” stocks, like PDN.TO - Paladin Resources Ltd. were down this week (about 2%), so this may or may not be a “large” issue. (Of course Paladin has other issues in play regarding Summit right now which may impact on the price).

I plan to keep an eye on these large stocks this week. I see no point in owning Cameco, since with the Cigar Lake flood no-one knows when they will be back in production. However, it appears that the psychology of the uranium market is changing. What’s the change? People are waking up.

There have been stories about uranium in the press. As of one week ago you can now trade uranium futures on the NYMEX. When the world wakes up, what does the world do? They rush to what they know. Try this test: phone up any broker and tell them you want to buy stock in a uranium company; without doing any research, most of them will suggest Cameco. Hence, the lemmings are all rushing into a stock whose mine is underwater. It makes no sense, but that’s the way it is.

I have avoided owning Cameco because their mine is under water, and it would appear that management has not been entirely honest about the long term remediation prospects. However, my feelings don’t matter. What matters is what does the market think? Apparently the market thinks Cameco is a good stock to own.

Therefore, my plan this week will be to watch Cameco and Uranium Resources Inc. (the largest uranium producer other than Cameco traded on a U.S. stock exchange, making it easier for the American lemming brokers to find without searching to the stock market in the Great White North). If they have a down day, I will start buying small quantities, purely for speculative purposes. I’ll hold them for a small profit, say 5%, and then sell.

They won’t be long term holdings, and I won’t put any serious money into them, but if the market wants to hand this to us, I see no reason not to take advantage of the big “LV” (Lemming Volatility, a term I just invented, and unless it catches on, I will probably never use the term again).

If you think I’m crazy, feel free to leave your thoughts on the Buy High Sell Higher Forum, and let’s see what happens this week.

Talk about volatility . Last Friday I was up 10.9% on the year; today I’m up 9.4% on the year. Doesn’t sound volatile? Well, on May 1 I was only up 4.7%, so I lost 5% and gained 5% all in the same week. Talk about a roller coaster ride.

What do I conclude from this volatility? I’m not sure.

One theory is that this volatility is normal at this time of year. Last year we had a big correction in the spring, and for decades stock market investors have said “sell in May and go away”, so perhaps this is all quite normal.

It’s also possible that fundamental, not technical, factors are causing this volatility. Last week we had the decision by the Labor Party of Australia to rescind their official policy against new uranium mines. That caused some people to take notice, but apparently caused most investors to “Sell on news” and sell some of these stocks. Uranium starts trading on the NYMEX futures markets on Monday, which will increase the public’s awareness of uranium. More publicity and liquidity should increase the price of uranium, but it could also be just the event speculators were waiting for to sell to new buyers and cash in some profit.

Either way, these events indicate volatility.

So, what to do? I think the strategy remains the same, but with a twist. I plan to keep holding my blue chip stocks, and ride out the ups and downs. For example, FRG.TO - Fronteer Development Group Inc. is a solid blue-chipper, and I’m holding; you can read about Fronteer here, and see the latest chart, which looks good.

However, I think some more frequent trading may also be in order. If shares are going up 5% one day and then down 5% the next, perhaps it makes sense to actively trade a portion of my portfolio. As of today 13% of my portfolio is in cash. I think I will probably start trading around 20% of it, which means 65% of it will remain invested in solid stocks, despite the volatility.

I’m not yet sure which stocks I will trade; feel free to leave your thoughts on the Buy High Sell Higher Forum, and let’s see how much volatility we have this week.

My single largest holding in my portfolio, at 10% of my portfolio, is FRG.TO - Fronteer Development Group Inc., I am sitting on a profit of 116%, the largest existing gain in my portfolio. The stock has had a slight pullback, but the chart still looks great.

The recent pullback did not bring Fronteer back to the uptrend line, so I continue to like this one. The RSI and MACD are also at favorable levels, so I see no reason to start selling.

One of Fronteer’s holdings is AXU.TO - Aurora Energy Resources, Inc.. In fact, Aurora is a spin-off from Fronteer, and Fronteer continues to own 50% of the outstanding shares. This week Aurora broke out and made a new high:

I sold my Aurora back in April when it didn’t break out; that would appear to have been a mistake. However, Aurora’s RSI is now at 72.10, which is high, so I don’t regret my decision. I like Fronteer, and as Aurora increases so does Fronteer, so for the sake of simplicity I will continue to own Fronteer, and take a pass on Aurora.