I don't know about you, but I'm beginning to feel an instinctual pull toward the miners. They have beaten down for so long that they finally just feel like they're ready to go higher. My gut tells me that, having reached a point where their relative valuation versus metal is several standard deviations away from normal (whatever that is), something is bound to happen. My brain tells me that prices, some of which have fallen all the way back to pre-QE2 levels, are bound to turn around soon. So, let's take a look.
Any discussion of the miners must begin with a look at the overall stock market because, at the end of the day, these are stocks we are talking about. Unfortunately for our bullish case, the S&P looks downright awful. Though fundos for most miners are improving with every uptick in the PMs, a falling stock market makes buying miners a bit like rowing upstream and a swift current can wash you away no matter how hard you are paddling.
That said, the HUI (gold miners index) doesn't look too bad. In fact, its at a point where it appears to be breaking higher. We'll know more in a week or so but, for now, keep a close eye on the 580 level. If the HUI can stay above there, base and move higher, it will create a favorable environment for most all of the mining stocks, regardless of their current technical picture.
Now, here's the kind of stock we're looking for. Note how Yamana struggled for the longest time to get through 13. Each time it tried and failed, the shorts were emboldened and more certainly joined the cause. Ah, but look what happened once it broke through 13! It based and used 13 as support before igniting a short squeeze that has driven it to 15.50. Pretty good stuff.
So, what we want to find are stocks that look like AUY but haven't broken through and taken off...yet. Below are four candidates. If the HUI holds 580 next week and you end up looking for a miner to buy, I'd start with these four or any other stock that has a similar-looking chart.
Now here are four that don't look so good. You can certainly nibble at these if you want and I'm not sure I would sell them yet if I'd ridden them all of the way down. However, if you're looking to buy, I'd stay away from these and any others you find that look the same.
Time prohibits me from giving you more charts but I think you get the picture. If you're interested in a stock not mentioned above, pull up a chart yourself. I think you'll find that it either looks like the first group or the second and it will then be clear to you whether or not it is something to consider buying.
If all else fails, just daytrade the UGL and the AGQ. Mister Hyde gave up on the miners about 8 weeks ago and has been trading these two ETFs exclusively ever since. He's made about 30% and is feeling quite pleased with himself. A word of warning, though. UGL and AGQ...particularly AGQ...are quite volatile and not for everybody, particularly the faint of heart. If you don't like the heat, don't go anywhere near the kitchen. In fact, stay out of the house completely.
In time, a portfolio of miners will treat you just fine. A little patience and a little homework will take you a long way. Good luck! TF