Junior Gold Stocks Benefit from Stabilizing Equity Markets

By: Chris Vermeulen | Tue, Jul 22, 2008
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Junior Gold Stocks - With the Stock Market Panic behind us - for now - we are settling in for a range bound, relatively calm, second half of '08. Junior Gold Stocks should finally start to benefit as the wet blanket smothering equity markets lift.

The New York Stock Exchange indicator for new lows reached an extreme of 1304 on Tuesday the 15th of July. That was even worse than the 1100 new lows reached on the 22nd of January. Such extremes spell one thing P-A-N-I-C.

Whilst it's difficult to infer any far reaching conclusions about one day sell-offs, even panics, the odds now favour a bounce in very oversold equity markets. As for how high and how long the stock market will bounce is anyone's guess, but here again, probabilities favour the market to move higher and longer than anyone expects so that sentiment indicators return to their old complacent Bullish state!

What will work during this period of 'relative' calm?

We had noticed a very definite flight to safety since market volatility began in October '07.

Firstly, a flight away from common Dow stocks to Gold Stocks:

(The following charts show relative performance of asset classes to each other. That is, when the chart is falling the first asset class (DOW) is underperforming against the second (Gold Stocks).


Chart 1 - Large Cap Gold Stocks (GDX ETF) have outperformed the Dow (DJIA) since August 2007

Within the Gold market this has manifested itself as a flight to bullion and away from Junior Gold Stocks:


Chart 2 - Gold Stock ETF has underperformed against Gold Bullion ETF since August 2007

And a shift from smaller more speculative junior Gold mining companies to their large caps cousins:


Chart 3 - Minefinders (for example) has under-performed against the large cap Gold Stock ETF

Now that there is a good chance equity markets will stabilize, the above trends will moderate and reverse. This means Junior Gold stocks prices should begin closing the valuation gap and discounting higher earnings based on $900+ Gold.

The remainder of 2008 looks set to be very bullish for Gold Stocks and Gold Stock Juniors in particular!

More commentary and stock picks follow for subscribers...

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
- OEC OpenECry
- The Fox Group
- Dorman Trading
- Vision Financial

He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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