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The Shopping SeasonBy Doug Casey
The Quiet Season is an enduring paradox in the junior mining sector. It's a paradox because it's actually the busiest time of the year for most Canadian exploration companies. For the simple reason that, in most of the Northern Hemisphere, exploration is easier and cheaper in the summer than the winter. Once the snow melts and the mud dries up, geos and company executives alike head out into the field, kicking rocks and keeping the drills turning pretty much around the clock. Naturally, with everyone off in some remote corner of Labrador or outer Mongolia, the flow of news, so important to generating trading volume, dries up. And it pretty much stays dried up until, typically, late summer or early fall when results begin to come in from the summer drill programs. Exacerbating the summer slump is a well-known tendency of brokers to cut back on their hours and take holidays during this time. And why not? With the explorers in the field generating samples for the assay labs, there are few new stories to tell. And with most of their clients - especially the Europeans - on vacation as well, there are fewer people to tell the stories to. Exploration companies make the situation worse still by holding back on releasing good news, in fear that nobody will notice it. As a consequence, unlike the rest of the year when stocks move up or down based on any number of relevant factors, during the Quiet Season, the controlling factor is the lack of volume that causes share prices to retreat. All very logical. All very predictable. It's why the old adage "Sell in May, and go away" is at least as true with mining stocks as it is with the broader market. But this year things have deviated from the expected in ways that are at once problematic and opportunity-creating for attentive resource speculators. Starting as early as February this year, many brokers began telling their clients to hold off on buying, or even to sell, in anticipation of the coming Quiet Season, helping to produce a self-fulfilling prophecy and accelerating the slump this year. Therein rests the opportunity. Because the Quiet Season started earlier, and for reasons I'll explain shortly, I think it will end sooner than most expect. The important thing is that you need to start thinking of the Quiet Season as the "Shopping Season," then you'll be thinking about it in the right way. If you are convinced that a particular company has the goods, you want to be long now, and not hold out for the exact bottom. If a stock you like goes down more, great; buy more. What you don't want to do is sit back until you are absolutely convinced it is safe to go back in the water. By that point, you will have missed the boat on the biggest upside. By the time something seems "safe," its price usually reflects that perception. Why Earlier This Year? My first reason for expecting the markets to get back to business sooner than most people expect is simply that, due to this year's heightened anticipation of the Quiet Season, many stocks sold off harder and certainly earlier than "should" have been the case. Speaking as a lifelong contrarian, the acceleration in the sell-off has set the stage for an earlier bounce. Second, there was a huge amount of money raised by the junior explorers in 2003 and 2004, money that has provided fuel for exploration programs on a global scale. Time and again I have heard mining executives complaining about the shortage in drills and drill crews. All that activity will lead, and soon, to results that the market will be forced to pay attention to. Along the same lines, we are increasingly seeing reserve-needy major producers joint-venturing with the competent junior explorers to effectively serve as their de facto exploration divisions. That gives these juniors access to both exploration funds and intellectual capital, both of which are needed to pull a big find. We are late in the typical two-year exploration cycle (the period between mounting an exploration program on a specific project, and learning whether or not something of interest is actually in the ground) for this resource bull market. That greatly increases the odds that this Shopping Season will be periodically punctured by important news, or entirely shattered by one or more major discoveries that bring a herd of investors rushing back into the markets. Before the herd returns, be sure that you have loaded up on the quality plays. After all, it is just common sense that you should take your position while these stocks are still temporarily depressed, and before the assays from the active summer drilling season come back from the labs.*** Of course, it remains something of a paradox: you want to buy when others are selling... but you don't want to buck the trend. An astute student of Zen, which specializes in paradox, should be a natural at stock trading... yet another paradox. Doug Casey *** To help his readers get solidly positioned early, in the junior explorers offering the biggest potential gains as the Shopping Season comes to an end, in the June 1 edition of his International Speculator, Doug Casey published a comprehensive Drill Schedule with details on those companies most likely to release important news soon. To view the Drill Schedule and try a subscription to the International Speculator, risk-free, click here. Once you are subscribed, navigate to the June edition of the International Speculator under the "Archives" tab for the drill schedule... learn more now. 321gold Inc |
