Thursday, May 10, 2012

Potential reversal for gold miners

Today’s action in the Market Vectors Gold Miners ETF GDX +2.02%  has the makings of a key upside reversal on relatively high volume. This comes in the aftermath of a 27-month new low and barely any participation in the October 2011-April 2012 bull phase in the S&P 500. 

A major upside reversal (on a close above 42.85) comes after what appears to be a two-leg correction of equidistant magnitude. The first leg was off of the Sept. 2011 high at 66.98 into the Dec. 2011 low at 49.22 (-$17.76). After an intervening rally to the Feb. 2012 high at 57.94, the second leg down was a near-vertical decline to today’s low of 41.10 (-$16.84). 

A combination of technical factors argue strongly for a significant near-term and possibly intermediate-term low. One factor is that the distance of the two corrective legs approximated one another at a target window of 40-41. In addition, the price level of 41.75 represented the exact 50% retracement support plateau of the entire prior up-leg from the October 2008 low at 15.83 to the September 2011 high at 66.98. 

Another factor is that the GDX reversed on major volume off of 41.10 today. 

Finally, my cycle work on the gold miners points to a 150-day (30-week) low in early- to mid-May.
Today’s potential upside reversal satisfies a significant technical signal within the anticipated timeframe for a cycle low, which adds even more meaning to today’s action in the GDX.

Why these Silver Stocks Could Bounce in a Major Way

As I was reviewing the list of stocks hitting 52-week lows this week, I noticed an unusual cluster of stocks: silver-miners. These stocks have been under heavy pressure in recent weeks and are falling anew, leaving them -- at least in the context of recent trading patterns and valuation sentiments -- quite cheap. Then again, just because something is cheap doesn't mean it's a bargain. After all, stocks moving below their 52-week lows can fall yet further before rebounding. So are these lagging silver-mining stocks offering up value, or are they just a value trap?
Here's what I found...

The cycle and costs -- a double whammy
Silver miners, just like any other mining firm, are seeing rising costs as labor and equipment expenses have both risen steadily in recent quarters. Higher expenses aren't a short-term blip -- they're the "new normal." Adding insult, commodity prices have been steadily falling on concerns that a European economic implosion will affect global trading partners from Brazil to China.

Yet here's the most important factor: Even with rising expenses and falling selling prices, silver miners continue to be a solidly profitable group. The EPS (earnings per share) figures noted above actually understate their profitability. High levels of depreciation dampen net income, but operating cash flow per share for almost every one of these companies is solidly higher than that EPS figure. (more)

Why Sovereign Defaults Matter... and Why Spain is a BIG Deal

by Gra­ham Sum­mers, Phoenix Cap­i­tal Research
The fol­low­ing is an excerpt from my lat­est client let­ter explain­ing why Spain is such a big deal and why when it defaults it’s game over for the EU.
I’ve received a num­ber of emails ask­ing me why Spain is such a big deal for the global bank­ing sys­tem. To fully under­stand the impli­ca­tions of Spain, you first need to under­stand how the global finan­cial sys­tem works “behind the scenes.”
We’ll start first with the US finan­cial sys­tem, par­tic­u­larly the Pri­mary Deal­ers which are the real con­trollers of the mon­e­tary sup­ply (via lending).
If you’re unfa­mil­iar with the Pri­mary Deal­ers, these are the 18 banks at the top of the US pri­vate bank­ing sys­tem. They’re in charge of han­dling US Trea­sury Debt auc­tions and as such they have unprece­dented access to US debt both in terms of pric­ing and mon­e­tary control.
The Pri­mary Deal­ers are:
1. Bank of America
?????2. Bar­clays Cap­i­tal Inc.
3. BNP Paribas Secu­ri­ties Corp.
4. Can­tor Fitzger­ald & Co.
5. Cit­i­group Global Mar­kets Inc.
6. Credit Suisse Secu­ri­ties (USALLC
7. Daiwa Secu­ri­ties Amer­ica Inc.
8. Deutsche Bank Secu­ri­ties Inc.
9. Gold­man, Sachs & Co.
10. HSBC Secu­ri­ties (USA) Inc.
11. J. P. Mor­gan Secu­ri­ties Inc.
12. Jef­feries & Com­pany Inc.
13. Mizuho Secu­ri­ties USA Inc.
14. Mor­gan Stan­ley & Co. Incorporated
15. Nomura Secu­ri­ties Inter­na­tional Inc.
16. RBC Cap­i­tal Markets
17. RBS Secu­ri­ties Inc.
18. UBS Secu­ri­ties LLC.
These are the firms that buy US Trea­suries dur­ing debt auc­tions. Once the Trea­sury debt is acquired by the Pri­mary Dealer, it’s parked on their bal­ance sheet as an asset. The Pri­mary Dealer can then lever­age up that asset and also frac­tion­ally lend on it, i.e. cre­ate more debt and issue more loans, mort­gages, cor­po­rate bonds, or what have you.
Put another way, Trea­suries, or US sov­er­eign bonds, are not only the pri­mary asset on the large banks’ bal­ance sheets, they are in fact the asset against which these banks lend/ extend addi­tional debt into the mon­e­tary system.  (more)

China’s Gold Imports Jump as Country May Become Biggest User

Mainland China’s gold imports from Hong Kong surged more than sixfold in the first quarter, adding to signs that the country may displace India as the world’s largest consumer of the precious metal on an annual basis.

Imports from Hong Kong were 135,529 kilograms (135.53 metric tons) between January and March, from 19,729 kilograms in the year-earlier period, according to data from the Census and Statistics Department of the Hong Kong government. Shipments in March rose 59 percent from February, yesterday’s data showed.

Demand has climbed in the world’s second-largest economy as rising incomes and curbs on property speculation boosted purchases. China may become the biggest user annually this year, according to a forecast from the producer-funded World Gold Council. Last year, total Indian demand including for jewelry and investment was 933.4 tons to China’s 769.8 tons. (more)

It's This Bad Because It's a Bottom: Eric Coffin

Eric Coffin, editor and publisher of the Hard Rock Analyst newsletter, has never heard so much negativity from investors. "Everybody thinks the world is coming to an end," he tells The Gold Report. As a contrarian, all the doom and gloom tells him the market is about to pull out of its tailspin. In this exclusive interview, Coffin talks about the hard-hit juniors in the Yukon and why it's an area play he still believes in.

The Gold Report: Eric, the gold bears recently outnumbered the gold bulls in Bloomberg's weekly Gold Bull/Gold Bear Sentiment Survey for the fourth time in a year. Are you a bull or a bear?

Eric Coffin: I think the gold price is going to end the year higher, so I guess that makes me bullish, but I think of myself as agnostic.
There needs to be a return of calm to Europe for the gold price to move much higher. The currency pair trade between the euro and the dollar is going to be a big determinant to the gold price. There's been more noise about the EU providing stimulus funds to offset all the government budget cuts in Europe. All of those countries have to deal with their debt loads. But it's not realistic to think that they can cut their deficit and 3% off their gross domestic product year after year and realistically get any net growth.
The other side of that equation is that the U.S. has slowed down. That'll help the gold price because a lot of goldbugs are riding on there being another round of quantitative easing. I'm not sure it's going to happen. But as long as Federal Reserve Chairman Ben Bernanke keeps saying it might happen, that's good enough.

TGR: Stagnant gold prices are translating to equities. Canaccord reports that "sector weakness in the gold equities over the last six years has typically ended with 'V'-shaped corrections to the upside." Do you believe that's what will happen this time?  (more)

Oracle’s Future Does Not Look Bright

Oracle Corp. (NASDAQ:ORCL) — Lawsuits with Google (NASDAQ:GOOG) and Micron Technology (NASDAQ:MU) have been a major distraction for Oracle’s management. Its sales growth and earnings momentum have fallen. But as Louis Navellier, editor of Blue Chip Growth, says, “What really keeps this stock down is its depressed level of buying pressure.”
Technically ORCL is in a bear market. Each attempt to rally falls short of holding above its 50-day and 200-day moving averages. Volume has also been a strong negative.
On Friday, a jury deliberating the first of Oracle’s two-part claim against Google failed to reach a verdict in the company’s $1 billion claim. This is likely to drag on for weeks while the technology stocks are slipping into decline.
It you own ORCL, sell at the market, but traders may desire more aggressive leveraged strategies using puts, etc. The downside target for traders is $24.50, but a break there could take it into the teens.
Trade of the Day – Oracle Corp. (NASDAQ:ORCL)

McAlvany Weekly Commentary

The New Depression: An Interview with Richard Duncan

A Look At This Week’s Show:
-We have not had true capitalism for 100 years
-The new economy: Expand credit or die
-Debt: From 1 trillion to 50 trillion in 5 decades
About the Author: Since beginning his career as an equities analyst in Hong Kong in 1986, Richard has served as global head of investment strategy at ABN AMRO Asset Management in London, worked as a financial sector specialist for the World Bank in Washington D.C., and headed equity research departments for James Capel Securities and Salomon Brothers in Bangkok. He also worked as a consultant for the IMF in Thailand during the Asia Crisis. He is now chief economist at Blackhorse Asset Management in Singapore. Click here to purchase: The New Depression

Chart of the Day - Pembina Pipeline (PBA)

The "Chart of the Day" is Pembina Pipeline (PBA), which showed up on Friday's Barchart "All-Time High" list. Pembina on Friday posted a new all-time high of $30.90 and closed up 2.16%. In recent news on the stock, Canaccord on May 4 upgraded Pembina Pipeline to Buy from Hold. Pembina Pipeline on May reported Q1 EPS of 19 cents and reported volume growth of 15%. Pembina Pipeline, with a market cap of $5 billion, is an energy transportation and service provider based in Canada. The Company operates in four segments; Conventional Pipelines, Oil Sands & Heavy Oil, Midstream & Marketing, and Gas Services. The Conventional Pipelines segment operates a pipeline network that transports crude oil, condensate, and natural gas liquids in Alberta and British Columbia.