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I'm
recommending a new junior mining stock today, but before I do that I
want to talk a little about gold for a second. Yesterday I posted a members
only article saying that I thought gold
likely put in a bottom last week and that I was looking for gold stocks to
make up half of their recent losses, with a target of the 450-460 area on the
HUI. After that I expect gold stocks to pullback, probably with the HUI
falling down back to its lows of last week, and then entering a period of
consolidation that would probably last through much of the summer. The reason
I see this happening is that many of the big cap stocks have been beaten down
so much in the past six weeks that they will need to go through a period of
consolidation before they can breakout to new 52-week highs and have a
sustainable rally.
As as result I believe that the big cap gold stocks are
worth only a trade for a rally up to the 450-460 area of the HUI while better
opportunities now lie in the smaller junior stocks where true bargains can be
found. The stock I'm recommending today for instance is poised to go into
production and produce over $300 million in revenue and has a market cap less
than $176 million. Stocks such as this can breakout and just go higher all
year.
This morning I
went back and looked at seasonal patterns for gold and the seasonal pattern
seems to match the projections I am making from the overall chart patterns. It
is worth knowing the seasonal patterns to the markets. Most people know the
adage of "sell in may and go away" when it comes to the stock
market, but there are even stronger seasonal patterns when it comes to
commodities. There are traders who make lots of money by simply playing
seasonality.
 
As you can see
gold has a tendency to make a peak in the April-May time period and then
consolidate through the end of August and then breakout in September and have
its best months through the end of the year. This seasonal pattern held true
in this gold bull market except for last year when the whole stock market
experienced its first subprime meltdown last August.
If it wasn't for that the same seasonal pattern probably would have held true
again.
If the pattern
repeats then we can expect gold stocks to rally until the end of the month
and then retest their lows, maybe even making a slight minor low, in June or
July and then base for a few weeks and breakout at the end of August or
September to rally through the end of the year. This would fit the scenario I
came up with yesterday from the overall gold and gold stock chart patterns.
What this means
is that traders can buy large cap gold stocks now and sell at the end of the
month with a mind of buying in the middle of the summer while investor should
use the current dip to buy into junior stocks with real assets and cheap
valuations as investments now. Investors want to use this dip to buy and
should look for a future dip in the summer as a chance to add on or increase
their exposure to gold stocks.
With today's new
stock recommendation now is the perfect time to take a risk-free trial to WSW
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Mike
Swanson
Editor, Wall
Street Window
Disclaimer: Michael Swanson is the President
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