It’s Mining Stocks for the Long Term

03/26/2012 8:00 am EST


Curtis Hesler

Editor, Professional Timing Service

However you feel about the markets now, the one sector that will have legs moving forward are precious metals mining stocks asserts Curtis Hesler of Professional Timing Service.

Do you feel the market is struggling here? Caution flags are going up in my work.

The VIX is at multi-year lows, indicating too much complacency in the market. The Street has become bullish, but my momentum indicators are beginning to deteriorate. There are negative divergences waving yellow flags. Plus, we are in the time frame where my long-term cyclical work has told us to look for a significant high in the popular averages.

Nevertheless, Palio (a short-term trading model based on momentum measurements) and the Nasdaq Slow Tracker are still positive. We will continue to look for continued professional distribution, and will remain on the defensive until they issue sell signals. Any way you look at it, the best of this rally is clearly behind us now in terms of the popular averages.

The Nasdaq Slow Tracker will generate a sell if the Nasdaq Composite trades at 2,900 or less. Unfortunately, I cannot give you a single parameter for a sell from Palio. It will not sell the ultimate high, and it will likely execute its next sell during weakness. It is not perfect, but it is profitable. I will alert you to the next sell when it executes.

It is wisely said that “the last shall be first and the first shall be last.” The adage proves out in stock market investing. The rally in the popular averages is long in the tooth.

On the other hand, the consolidation in gold (which has been in process since it tipped $1,900 in late August) is coming to a point where I expect gold to reverse and begin trading contrary to the stock market averages.

Gold has been trading between $1,600 and $1,650, where there should be significant support. Thursday’s dip to $1,632.90 basis August was followed by a sharp bounce to close $14 off the low. It looks like professional accumulation to me.

If you are looking for some great positions that will benefit from weakness in the dollar over the next few years, that will benefit from continued upheaval in the Middle East, and that will benefit from the next phase of European financial problems this summer, this is the time to hold and accumulate mining shares. I would stick with the producers as they actually pay a dividend that in this day and age are enviable compared to what your bank will provide.

With the XAU and HUI closing in on super support levels, the mining shares in general are screaming bargains. I don’t look for them to explode just yet. As I will go over in the April letter, a time of explosive upside acceleration is coming.

The gold bull is far from over. Heed the downside buy prices, and accumulate in weakness if you feel underinvested. If you are satisfied with your position, hang on tight.

The energy sector is correcting, but Brent crude is behaving well overall. The saber rattling over Iran has helped keep crude prices relatively high, but there is more to this. There are plenty of reasons to look for higher crude prices. Nothing that pushed prices this high has changed.

There has been some technical profit taking, but so far, Brent crude is still trading within the trading range that it has been confined to for the past few weeks. After some short term profit taking, crude should be ready to break out of the trading range. Don’t be surprised to suddenly see Brent crude breaking above $130 later this spring.

Natural gas continues to form a base in the $2.20 to $2.40 zone, and it should begin its next rally phase soon.

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