The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, September 7, 2015.
Have you ever heard the saying - good things come to those who wait? What this obviously means is good things happen to the patient. Within my own life experience I have found this to be true. Patience is more often than not a virtue, especially when it comes to the speculation game. And while it's true these past few years have not been kind to such thinkers - that's the point - meaning the future looks bright for those who exercised patience and good judgment in attempting to game a bottom in precious metals.
Those who attempted to impose their own will on outcomes, and ignored the warnings, have been decimated financially through the cyclical bear market in precious metals these past four-years. (i.e. think mid-term correction.) But those who were penitent and wise are now in position to benefit from what will likely be an unbelievable recovery in the sector at some point in the not too distant future. People won't believe the gains precious metals, led by the shares, can make. But that's what it takes to engender a bull market - disbelief and a wall of worry for smart capital to climb.
We saw this at the turn in 2000/2001, and it lasted only three years, when precious metal shares ripped higher. Some life fortunes were made during this time. And here we are again, at the other end of the Dumb Bell Rally into a Fibonacci 21-year cycle due to top in 2021. Given the impatient would say it's taken longer to get here than anybody thought, a bottom is possible (likely?) in the sector sometime between October and February of next year - at the outside. This prognostication is based on the observation it took slightly over six-months for precious metals to bottom after the broads topped in 2000.
If we have a repeat here, where indiscriminate margin debt related selling occurs over the next six-months, which is not difficult to imagine with present record levels, the October to February window seems about right if the top for stocks is actually in as of the May to July triple top in the S&P 500 (SPX). Of course with margin debt levels much worse than either 2000 or 2008, and in Technicolor, the outcome this time around might be different. (i.e. longer as the world slips into deflationary depression or shorter because of a stock market crash in October.) Be that as it may, for our own accounts we will be looking hard at precious metals shares during this period, especially if the Amex Gold Bugs Index (HUI) is trading between 60 and 80.
With the HUI at triple bottom lows right now, just hovering above the large round number, it's no longer difficult to imagine such an outcome anymore, because once 100 is taken out, the next largest interval is 50, bringing previously unfathomable thoughts into view. As long-term subscribers would know, we have been using the measured move (MM) off the larger degree head and shoulders pattern (H&S) shown in the weekly Amex Gold Miners Index (GDM) plot from the Chart Room as our guide to identifying a tradable bottom for precious metals shares for some time now, with a target of 300, which is 18.6% below Friday's closing price. (See Figure 1)
Transposing an 18.6% loss onto the HUI from here would put it at approximately 85 (we've been using 90 but 85 is more exact now that we know more about how components are aligning), which is above the 60 to 80 range, not that this area won't be vexed if the GDM vexes lower trajectories as well given the sucking sound you will hear if stocks pull a 1987 would likely be 'a record'. Add to this one should only add to portfolios gingerly until the TSX Venture Index (CDNX) is vexing 400, which is another corresponding measure to keep an eye on, where it too is now set to collapse to the H&S MM denoted in Figure 2. Again, loyal subscribers would know this has been my multi-year target. (See Figure 2)
But it's taken patience to get to this point. And it will require more not to move too early in coming days as well.
Good investing will soon be possible in precious metals.