Trading in a sideways market is not an easy task – especially in this market.
Over the past year, we have seen strong runs followed immediately by strong pullbacks. This past week was no exception as the market took us for a wild ride. This makes trading difficult.
Trading in this market should be reserved for sophisticated day traders who not only have a large piggy bank, but a wealth of time on their hands.
Most of us don’t fit in that category. Most of us have day jobs. That’s why we prefer to invest, rather than trade.
Sound confusing? Let us explain.
Stock prices generally do not reflect what a company is really worth because they can fluctuate every minute of every day. In most cases, a company’s actual outlook or performance doesn’t fluctuate the same way.
The actual trading of stock, which determines a company’s worth, is based on investor expectation, and more importantly, psychological momentum – especially in the junior market. It’s incredible just how big of an impact a small article published from a respected news source can have on the markets.
But news happens and changes every minute of every day – just like stock prices. However, a corporation’s progression and corporate value generally doesn’t fluctuate as fast.
When you trade, you’re making a bet on the perception and psychological emotions of investors. When you invest, you’re making a bet on a company’s value and potential.
Traders need to constantly act on daily price fluctuations much more than an investor does.
In our last issue, Actions Speak Louder Than Words, we talked about the strong sell off in commodities-related stocks and the reasons why we believe that this recent sell off is more of a consolidation period, rather than a bear market. When this consolidation period ends, we expect to see a continued bull market for the remainder of 2011.
However, this consolidation (as mentioned in Actions Speak Louder Than Words) may take a few months before we see the bottom.
The trading activity this past week added more proof to our consolidation theory, as we saw a strong increase in buying Wednesday leading to a significant rise in the commodities-weighted TSX and TSX Venture exchanges. This was followed by another down day on Thursday, and back up on Friday (TSX Venture).
If you’re going to trade this market, it’s important to understand it.
When choosing the right stock, it’s important to know how the sector is performing, how its peers are performing relative to itself, and how the price and volumes are reacting. Knowing how the price and volumes are reacting is important because this can give you an idea of what the smart money is doing.
We saw a lot of smart money loading up on shares this week as scared traders sold cheap stock to them.
In this market, it’s more important to see what the buyers and sellers are doing, rather than what the company is.
Over the past month, we’ve seen gold producers increase production, yet their share price continues to fall. We’ve seen juniors make significant upgrades to their resource calculations yet continue to fall in share price. That doesn’t mean the company is doing bad. When this market turns around and we find a bottom, many of these companies could see a significant climb.
But how do we know where the bottom is?
The bad news is that it’s almost impossible to find an exact bottom. The good news is, after a stock has hit a bottom, it generally takes some time to rebuild its base and will trade sideways for months before a new bull run begins. It is during this time that the smart money, or the guys “in-the-know,” are building their positions.
This can often be seen by increased volumes, with little price movement after a stock has hit a bottom. If you’re going to trade, this is a great time to build a position. This “consolidation” phase can last a few months, so be patient.
If you trade frequently, you may want to consider buying into Level II data to see the actual price movements and bid/ask in real time – we would never invest without it and you shouldn’t neither if you’re going to make big bets.
Trading without Level II data is like buying a house without seeing what’s inside. Level II can you a great picture of a company’s market. It can tell you how much support a company has and how many people want to sell at a certain price. Knowing the depth of a company’s market can make the difference between making thousands, or just hundreds.
If the decline in prices continue, we will be buying more stock once we determine our bottom for the companies we are following. These price movements may mark a significant point of entry if, and when, the market rallies this year as we expect it to.
Our favourite sector remains in hard assets, with a continued focus on gold and silver – despite the recent drop in prices.
Precious metals have always been a hedge for inflation and a hedge against fiat currencies. When you look at what’s happening around the world, the recent drop in gold and silver prices should only be temporary.
Inflation is already here. Those who say otherwise are only lying to themselves:
- Food prices are soaring around the world, with wheat up over 80% from last year
- Oil is trading around $90, despite supply and demand numbers
- China’s inflation is already at 5%, nearing 6% in June
- Import prices into the US are rising, especially from China
- Producer prices rose over 1% in December
- The European Central bank is already raising interest rates to combat inflation
Inflation is not the only reason why we expect precious metals to hold their value this year.
In November, Russia and China announced a decision to abandon the dollar in bilateral trade dealings, resolving instead to use their own currencies. This latest move – a continuation in a series of efforts by both countries to move away from U.S. dollar usage in international trade – further threatens the dollar’s reserve currency status.
That doesn’t mean the US dollar is going away anytime soon. But drops in the US dollar will have an impact on the price of precious metals, as China and other emerging markets continue to buy more gold and silver.
Gold, interest rates, and inflation have always gone up together. Interest rates will go higher, a lot higher, in the long run. Inflation is already here but will also go higher. That leaves a lot more room for gold to climb, which means added benefit to the companies in the sector.
We expect gold to not only hold its value, but climb later this year. If gold continues its climb, it should have a significant positive impact on Minco Gold once they finalize the acquisition of their new producing gold mine.
Good times ahead. Be patient.
Investing is risky, especially in juniors. Please do your own due diligence and conduct your own research.
Until next week,
Ivan Lo
Managing Director
Equedia Weekly
Forward-Looking Statements
This Newsletter and report contains certain forward-looking statements that may involve a number of risks and uncertainties. Actual events or results could differ materially from current expectations and projections. Except for statements of historical fact relating to the project, certain information contained herein constitutes “forward-looking statements”. Forward-looking statements are frequently characterized by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate” and other similar words, or statements that certain events or conditions “may” or “will” occur.
Except for the statements of historical fact, the information contained herein is of a forward-looking nature. Such forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Company to be materially different from any future results, performance or achievements expressed or implied by statements containing forward-looking information.
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that statements containing forward looking information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on statements containing forward looking information. Readers should review the risk factors set out in the Company’s prospectus and the documents incorporated by reference.
Cautionary Note to U.S. Investors Concerning Estimates of Inferred Resources
This presentation uses the term “Inferred Resources”. U.S. investors are advised that while this term is recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize it. “Inferred Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of “Inferred Resources” may not form the basis of feasibility or other economic studies. U.S. investors are also cautioned not to assume that all or any part of an “Inferred Mineral Resource” exists, or is economically or legally mineable.
Disclaimer and Disclosure
Disclaimer and Disclosure Equedia.com & Equedia Network Corporation bears no liability for losses and/or damages arising from the use of this newsletter or any third party content provided herein. Equedia.com is an online financial newsletter owned by Equedia Network Corporation. We are focused on researching small-cap and large-cap public companies. Our past performance does not guarantee future results. Information in this report has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. This material is not an offer to sell or a solicitation of an offer to buy any securities or commodities.
Equedia.com has been compensated to perform research on specific companies and therefore information should not be construed as unbiased. Each contract varies in duration, services performed and compensation received. Equedia.com is not responsible for any claims made by any of the mentioned companies or third party content providers. You should independently investigate and fully understand all risks before investing. We are not a registered broker-dealer or financial advisor. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report OR ON Equedia.com will be the full responsibility of the person authorizing such transaction.
Please view our privacy policy and disclaimer to view our full disclosure at http://equedia.com/cms.php/termsr. Our views and opinions regarding the companies within Equedia.com are our own views and are based on information that we have received, which we assumed to be reliable. We do not guarantee that any of the companies will perform as we expect, and any comparisons we have made to other companies may not be valid or come into effect. Equedia.com is paid editorial fees for its writing and the dissemination of material and the companies featured do not have to meet any specific financial criteria. The companies represented by Equedia.com are typically development-stage companies that pose a much higher risk to investors. When investing in speculative stocks of this nature, it is possible to lose your entire investment over time. Statements included in this newsletter may contain forward looking statements, including the Company’s intentions, forecasts, plans or other matters that haven’t yet occurred. Such statements involve a number of risks and uncertainties. Further information on potential factors that may affect, delay or prevent such forward looking statements from coming to fruition can be found in their specific Financial reports. Equedia Network Corporation., owner of Equedia.com has been paid six thousand three hundred and thirty three Canadian dollars plus gst/hst per month for 6 months which totals thirty eight thousand dollars plus hst of media coverage on Minco Gold Corporation plus 60,000 stock options. Minco Gold Corporation has paid for this service. Equedia.com currently owns shares of Minco Gold Corporation and we may purchase more shares without notice. We intend to sell every share we own for our own profit. We may sell shares in Minco Gold Corporation without notice to our subscribers. Equedia Network Corporation is a distributor (and not a publisher) of content supplied by third parties and Subscribers. Accordingly, Equedia Network Corporation has no more editorial control over such content than does a public library, bookstore, or newsstand. Any opinions, advice, statements, services, offers, or other information or content expressed or made available by third parties, including information providers, Subscribers or any other user of the Equedia Network Corporation Network of Sites, are those of the respective author(s) or distributor(s) and not of Equedia Network Corporation. Neither Equedia Network Corporation nor any third-party provider of information guarantees the accuracy, completeness, or usefulness of any content, nor its merchantability or fitness for any particular purpose.
