Buy-High-Sell-Higher.com

First, a happy belated Thanksgiving to all my American friends. The day off on Thursday seemed to increase the volatility this week, but by the end of Friday my portfolio for the week had fallen less than half of one percent, so it ended up being a basically flat week.

So, what do I think? I think the same as I thought last week:

Gold

On gold, I said “I see a healthy consolidation. The uptrend line going back to August 16 is still intact, although only just barely. Gold is still trading well above it’s 50 and 200 day moving averages. And, the RSI is now down below 50, a significant drop from last week, which probably signals a buying opportunity.”

Well, guess what: Gold bottomed out just before the 50 Day Moving Average Level, and has moved up ever since. I have no doubt that at some point the old highs will be challenged, probably sooner rather than later. I see absolutely no reason to be seeing gold at these levels. The Big Boys can manipulate the market all they want; the fact remains the no-one wants to hold paper currencies, physical demand is high, production cannot keep up, so the price is heading higher. It’s as simple as that.

Let’s not over-think this: a trend in motion stays in motion, and the trend is up. I assume we will see $1,000 before the end of February, 2008.

(I of course have no idea what will happen next, and I am wrong as often as I am right, but since you have taken the time to read this far, there’s my prediction).

Uranium

More from the Department of the Obvious: Uranium is going up:

Ux U308 Price

As I have said before, I’m no “rocket surgeon”, but October sure looks like a bottom to me, so I assume we will see $100 uranium before we see $80 again. ($120 by the end of February, if you really have nothing to do but listen to my silly predictions).

The Double Bottom

As I have said many times over the last three months (for example, on September 29), it is necessary to retest the August 16 lows before we can have a sustained move to the upside. In fact, here is what I said on September 29:

“Again, to beat a dead horse, I still believe a normal market pattern would be to re-test the August 16 lows. I don’t believe we will get down to those levels, but nothing goes up in a straight line, so I plan to gradually deploy cash over the month of October, with the expectation that November and December will be excellent months (as they traditionally are; just look at the charts). ”

Okay, so I’m not the Amazing Kreskin. Obviously November has not been “an excellent month”, although it’s not over yet. Obviously I didn’t need to be a heavy buyer in October; I could have waited until November. My timing was early.

However, look at the charts. Start with the uranium chart above; the low point for the year was in January and February, it peaked in the summer, and fell to a bottom in October. The October bottom was a retest of the February lows, but it did not break them. Therefore, the uptrend is mildly intact, and we should continue to move upward from here.

(The Gold chart is more obvious, since we have only had a minor two week pullback in gold, which as I said earlier is very healthy).

The gold stocks look fine; here’s my largest holding, K.TO - Kinross Gold Corp.:

Obviously the August 16 lows were retested in September, and it’s been onward and upward from there. We had a normal and healthy consolidation in early November, and the uptrend has continued. (Note that, like the gold chart, the 50 DMA provides important support). I see no reason to believe that we won’t look back on this one at the end of December and wish we owned more. I’m sitting on a 17% profit at the moment, and I have no plans to sell.

If gold is in an obvious uptrend, what about uranium stocks? One of my larger holdings, at 5% of the portfolio, is JNN.V - JNR Resources Inc.:

Again, the August 16 lows have held, a new uptrend appears to have begun, and the RSI is at favorable levels, so I see no reason to do anything but hold (or buy) this stock.

Every chart does not look quite as pretty. Take for example FRG.TO - Fronteer Development Group Inc.:

The August 16 lows were retested, and the increase has not been as strong, but I still believe the trend is up, so I interpret this stock as a “buy” (which is good, since it is currently 6% of my portfolio).

Some charts are much worse, of course, such as UUU.TO - Uranium One Inc.; here’s the three year chart:

Obviously slashing their production forecasts was a big negative for the stock, and the three year uptrend has been broken. It’s only 2% of my portfolio, but I’m sitting on a 20% loss. Should I sell or hold?

In hindsight I should have sold as soon as the bad news was announced. However, this is still one of the few actual uranium producers out there, and as the price of uranium increases, so will the price of this stock. And at these depressed levels, wouldn’t this be great as a take over candidate? I don’t see it going much lower, and I see a big upside, so I’m holding.

There are many more stocks to discuss, but I think you get the point. I’m satisfied where I am positioned; we will see in the coming weeks if my satisfaction is warranted.

As always, thanks for reading, and please continue to share your thoughts on the Buy High Sell Higher Forum.

Before we discuss the week that was on the markets, let’s talk about the really big news:

The price of The Dines Letter is going up! Wow.

I guess it’s true; the best defense is a good offense. Mr. Dines has been recommending PNP.TO - Pinetree Capital Corp for many years. This year he put it in his “Good Grade” portfolio (Moderate risk; good long-term capital gains). On April 13, 2007 it traded at $14.98. On August 31, 2007 it traded at $4.08, a drop of 73%. It closed Friday at $5.34, still down 64% from the peak. That doesn’t sound like “Good Grade” to me, which is why I haven’t had it in my portfolio for many months.

Am I being too picky here? Am I wrong to think that a stock in a conservative portfolio should not drop by 73%? Am I wrong to think that at some point there has to be a sell signal? Maybe I am wrong.

Mr. Dines originally recommended Pinetree back in November of 2005 at .795 cents in U.S. funds, and on November 14 he quotes it at $5.85 in U.S. funds, for a gain of 635%, or a per year gain averaging around 318%. That’s pretty good; what’s to complain about? My complaint is that all of that gain occurred in the first year. From November 17, 2006 to today the stock is down 35%. That just doesn’t sound like that good a result to me.

He also recommended a stock, which shall remain nameless (they make drinks) in which he had some direct involvement in product development. In this issue he recommends selling, at a 66% loss (although he says he has not yet sold any of his shares, but might for “tax loss purposes”). Hmm. Big write up when it’s time to buy, and a footnote on page 15 when it’s time to sell at a huge loss. Hmmmmm.

Why the price increase for The Dines Letter? Because “we have not raised our prices in over 20 years”. Okay, I buy that, prices of everything have gone up over the last 20 years.

Except, wait a minute. Twenty years ago everyone got their TDL by mail. Now virtually everyone gets it my e-mail, which costs essentially nothing to send. No printing costs, no postage, no envelope stuffing. That’s why I think it funny that he says that TDL “is also available by e-mail at no extra charge.” No extra charge? Should we not be getting a discount for saving him the postage and handling costs? Or should he not charge a premium for mail delivery?

But I digress. As I have said before, it pains me that Mr. Dines appears unable to admit his mistakes. Yes, he, amongst a few others, did correctly call the uranium boom (although he missed the correction of the last six months). He did identify gold as a good investment (he did identify it five to ten years early, and so subscribers would have been better off in cash during most of that time, but again, I digress). His comments still move the markets, and therefore if you want to invest in junior resource stocks you should still subscribe to TDL. You must take everything he says with a grain of salt, and you must do your own thinking, but like it or not, his opinions still matter.

So, what else is Mr. Dines saying? Well, buy his newsletter and you can find out, but his thoughts are similar to mine. He likes silver, and in a recent IWB recommended a silver stock that his been on Casey’s list for a few months. I agree with him. As I said on October 27, silver is about 26% of my portfolio. Silver has been in gold’s shadows, but with the recent small pull back in gold, it is probably silver’s time to shine.

The Week That Was

Okay, enough about Mr. Dines. Where are we at in the markets? Well, last week we were in a consolidation week, and I lost money.

Last week I predicted that gold would have a brief spurt up to the $850 level and then pull back for the inevitable correction. Nope. Monday started with the inevitably correction, and down we went.

However, when I look at the chart, I see a healthy consolidation. The uptrend line going back to August 16 is still intact, although only just barely. Gold is still trading well above it’s 50 and 200 day moving averages. And, the RSI is now down below 50, a significant drop from last week, which probably signals a buying opportunity.

I am now fully invested, so my plan is to sit tight. We will have lots of volatility, but that’s the way it goes. The November options have now expired, so volatility will probably be lower this week, and I assume with the pullback this week next week will be better.

Time will tell. (I’m bound to be right one of these days; it’s when we look most wrong that we are often the most right).

As always, thanks for reading, let me know if you think I’m missing the boat, and feel free to share your thoughts on the Buy High Sell Higher Forum.

This week was not as good a week as last week. The broader markets pulled back, and when the tide goes out, everything goes out with it. My portfolio overall fell about 3%.

So am I depressed?

Nope.

I view all pullbacks as yet another great buying opportunity. So, this week, I bought.

Last week I discussed UUU.TO - Uranium One Inc.; they slashed their production forecasts, which hit the stock hard. I bought more this week, at prices under $10. I think this is a great example of a buying opportunity. The stock tanked due to lower projected production, but they still expect to produce about 2.1 million pounds of uranium this year, 4.6 million pounds for 2008, 8 million pounds in 2009 and about 11 million pounds in 2010, as more projects come on line.

That’s a production increase of 500% over the next three years. With increased production, and an increase in the price of uranium, we will look back on a $10 share price as a great buying opportunity. Grab it well you can.

On the topic of uranium, take a look at the chart on the right hand side of the page. I’m no “rocket surgeon”, but it sure looks to me like we are now moving off a bottom, and that’s very good news.

I increased my holdings this week of the following uranium, gold and silver stocks, because, again, they look inexpensive and poised for a run:

FRG.TO - Fronteer Development Group

DML.TO - Denison Mines Corp.

IPT.V - Impact Silver Corp.

KRI.TO - Khan Resources Inc.

MAI.TO - Minera Andes Inc.

What else looks good?

Gold.

I have little doubt that we will see $1,000 gold before we see $700 gold again. The only real question is how fast will the increase be? Personally, I believe the rise will be volatile, with lots of ups and downs along the way.

Consider this: The RSI level increased to over 70 during the first week of September (when gold was around $690), and stayed there until around October 1 (when gold had a near term peak around $755). That was a run of almost 10% in less than one month.

Around October 25 we got back over the 70 level again, with gold around the $790 level. Another 10% run would put us around $870, sometime in the middle of November. A pullback into the $840 to $850 range would not be surprising.

My guess, therefore, is this: Sometime next week gold will take out the previous all time high of $850. (This previous all time high is a completely meaningless number when inflation and the value of the crashing greenback is factored in, but it’s psychologically important none the less). We will see lots of newspaper stories about gold at it’s all time high. When the public starts noticing the price of gold, that will signal a near term top.

At that point I will consider selling and locking in profits on 25% of my gold holdings.

Why only 25%? Because that “top” will be a minor top; we will see a very minor correction, perhaps lasting only a week, and then it will be onward and upward from there. I have no intention of selling; that would be insane in a massive bull market.

However, if we are going to have a minor down tick, I will take the opportunity to sell some calls on the gold stocks I own. That way I can pocket some additional cash, while still holding the underlying stocks. Candidates for covered writing will include G.TO - Goldcorp Inc, , K.TO - Kinross Gold Corp, and IMG.TO - IAMGold Corp, all of which are optionable in Canada. (Given the recent crash of the U.S. dollar, I’m keeping all of my holdings in Canadian dollars).

Of course there are no guarantees that my predictions will be even close to correct. However, nothing goes up in a straight line, so if I can skim some profits on the way up, why not?

I also believe that more volatility to the down side in the general market is inevitable. The credit crunch isn’t over yet. New accounting standards come into effect on November 15. I won’t bore you with the details, but if you have an accounting background feel free to read FASB Statement 157; essentially more strict disclosure of “crappy” investments will be required, which will no doubt lead to a further decline in prices of financial services companies, which will drag the entire market lower. As I said earlier, while a rising tide will lift all boats, when the tide goes out, everything sinks.

However, if stocks in general are getting hammered, what is an investor to do? Put their money in cash? That makes no sense if the value of your cash keeps crashing, as the U.S. dollar has been doing for months. Hard assets become the order of the day, and that means gold, silver and uranium.

So, to summarize: while we will have volatility, the trend is decidedly upward, so I will continue to buy on dips, take small profits (probably in the form of short term covered writing on my large cap gold holdings) when we have large upticks, and continue to remain close to fully invested (I’m down to 6% cash at the moment).

As always, thanks for reading, let me know if you think I’m missing the boat, and feel free to share your thoughts on the Buy High Sell Higher Forum.

“Sweet” - JDH, describing market action this week.

What a week it was. Finally, we have started to see some green on our computer screens, replacing the red we have been staring at for much of the year. A few weeks ago my portfolio was down 30% on the year. Now I’m down 20% for the year, but if we have a few more weeks like this one 2007 will still close in positive territory.

Our new best friend, gold, is over $800 dollars an ounce. Not bad, considering it was around $660 in August.

The reasons for gold’s rise are no secret:

First, the U.S. economy is in bad shape. Housing foreclosures are at an all time high, and losing your house certainly dampens your enthusiasm for shopping at your local building supplies big box store.

Second, the U.S. economy is in really bad shape. The Canadian dollar surged above $1.07 U.S. on Friday, it’s highest level ever. It wasn’t that long ago that we were staring at a 60 cent dollar. Clearly, no-one wants U.S. dollars. The U.S. government is printing massive amounts of money to finance the war in Iraq, and apparently no-one wants those worthless pieces of paper. Far better to put your wealth in something that can’t be printed: gold.

Foreign gold buying, reduced central bank gold sales, and general consumer perceptions have also fueled this rise in the sparkly yellow metal.

The only cloud on the horizon is the relatively high RSI number of 78.21 (see chart). The RSI was over the psychologically important 70 level from around September 10 to early October, when gold had a minor pull back to bring the RSI down. Presumably gold could keep running for another week or two before it gets so over bought that a minor correction occurs. I have no plans to worry about that. A drop from say $825 back down to $800 won’t cause me to jump off a bridge. I’ll stay the course, and start thinking about selling as we approach the $1,000 level.

Obviously this strong performance has helped gold stocks, like my biggest old holding, K.TO - Kinross Gold Corp. It is currently 9% of my portfolio (higher than it’s recommended weight of 8% due to it’s recent rise), and I’m sitting on a 22% profit.

Again, my only worry is that we are starting to look a little toppy. The RSI, MACD, and Money Flow Index numbers look over bought, so a correction would not surprise me at these levels. This stock is a long term hold for me so I have no plans to sell, but I may do a covered write to lock in some profits in the event that it falls from here. For example, I can sell an at the money call, the November $19 call, for 70 cents. It expires on November 16, two weeks from now, so if Kinross closes below $19, I pocket the 70 cents, which obviously lowers my cost of ownership by 70 cents, less commissions.

Alternatively, I could sell the November $20 call for about 30 cents. I don’t bring in as much, but I only get called if the stock rises another dollar from here, so I actually make $1.30.

I have not yet decided what I’ll do, but I suspect if Kinross does approach the $20 range I will probably cover and lock in some profits.

Burying the Lead

Now please allow me to explain a concept that journalists call “Burying the Lead”, meaning you start by talking about the least important aspects of a story first. (”The play was great, the actors were wonderful, and oh, by the way, something bad happened to President Lincoln”).

As I surveying my portfolio, the biggest winners are not gold stocks; they are uranium shares. The biggest winner so far is JNN.V - JNR Resources Inc.:

I am happy to report that we have played this one perfectly. After August 16 I said something along the lines of “I don’t want to start buying yet; we need to retest the lows to make sure they hold before putting both feet in the water.” As the chart shows, that was the correct approach. We bounced off the August 16 lows, and then corrected in September and October, but in both cases the August 16 lows held, paving the way for the recent advance.

JNR is now, finally, trading above it’s 200 Day Moving Average, and is also above the $3.25 double top formation from July and August. The RSI and MFI are getting toppy, but this is a great company, and looks to me like it has a lot farther to run (it was $4.50 on April 10), so I’m holding.

Obviously lots of other stocks have done well this week, so what does this mean?

It means we are now in the sweet spot. As in past years, November and December tend to be great months for the uranium stocks, and guess what: Halloween is over, it’s now November. We deployed cash during October, and now is the time to deploy whatever cash you have left, because it doesn’t get any sweeter than this.

Yes, there will be down days - just ask shareholders of UUU.TO - Uranium One Inc., of which I am one.

Uranium One slashed it’s production forecasts, and the stock tanked. However, as the chart shows, it tanked down to it’s long term uptrend line. The RSI is now at a much better purchase level, so I plan to increase my holdings this week, now that the dust has settled (from 2% of the portfolio to 3%).

There are lots more stories out there, but the message now is clear: now is the time to be fully invested. (Or, as davidslane put it on the Buy High Sell Higher Forum, we are at the stage where you can throw darts at the uranium stocks and make money over the next few months).

As always, thanks for reading, enjoy the sweet spot, and feel free to share your thoughts on the Buy High Sell Higher Forum.