TheDailyGold: Thoughts on EMs, S&P 500, Silver & GDX A/D Line

Published: Sun, 05/25/14

Sunday, May 25, 2014
Argonaut Gold Corvus Gold
Balmoral Resources
Bear Creek Mining


In this update we have a few links and some charts & comments on global markets as well as precious metals...

Links of the Week...

Podcast: Balmoral Resources is Firing on All Cylinders
Here is our interview with Darin Wagner, founder & CEO of Balmoral Resources. He discusses the company's Nickel discovery at Grasset as well as the recent bonanza grade hole at the flagship Martiniere project. At its recent high the stock was up 4-fold from its low about 11 months ago.  
Corvus Gold Extends High-Grade Veins & Discovers New Vein
Corvus intersected 12.8 g/t Au & 62 g/t Ag over 17.5 meters. Also, they intersected 5.7 g/t Au & 33 g/t Ag over 9 meters.

Tiho Brkan: Metals Could Rally & Surprise Investors
Tiho believes a selloff in Silver from here is an opportunity and he would not be surprised to see Silver eventually rise 50%, 75% and 100% from here. 

Global Update

Breadth in the S&P 500 continues to weaken. Strong divergences are present in most breadth indicators. This chart shows the % of stocks with an RSI above 70 and the % of stocks at 52 week highs. The market has creeped and inched its way higher in recent times but its breadth continues to deteriorate. Look at the % of stocks above an RSI of 70. It peaked almost 12 months ago at 32%. Now it's only 3%. The percentage of stocks making new highs peaked a year ago.  

Here is my chart of the S&P 500 with three breadth indicators (two are smoothed). Also, note the 400-day average and the arrows. It is an important point of support for preventing losses from major bear markets. I checked back at my favorite comparisons to today (1946-1949) and (1977-1982). Those bears breached the 400-dma but by the time that happened, about 60% of the bear was already over. Nevertheless, we should keep it in mind. 

Emerging Markets are in excellent technical position and trading at quite reasonable valuations. The sector has been flat over the past 6.5 years but now its valuation is stronger and the sector is under-owned. 

Right now, the S&P 500 is trading at 18x trailing earnings and only yields 1.85%. Meanwhile EEM trades at 12.2x trailing earnings and yields 2.70%. Consider that sentiment has been overly negative towards Emerging Markets yet exuberant towards US stocks. Factor in that US households own more stocks (as part of their assets) than at any other time than the late 1990s and that corporate profit margins are at all time highs and you'll see why the S&P 500 will struggle over the coming years. I didn't mention that Emerging Markets are growing much faster.

In our latest Global Update #33, we noted a few emerging countries with improving technicals that are trading at low valuations and have good long-term upside potential.    

Precious Metals

Earlier today we published TDG #362, a 29-page update.

Here is one chart from the update I will share with you. This chart plots GDX and its advance/decline line below (A/D). The A/D line is a breadth indicator and can often be a leading indicator. Note how it fell to new lows in September 2013, well ahead of GDX. At present, GDX has been flat for several weeks, though could be starting to break lower. Meanwhile its A/D line has declined steadily. This development, in my opinion clarifies the short-term direction of the sector.  

Here is another chart which shows the current COT for Silver. For a number of reasons, and the COT is one, I see better risk/reward potential in Silver over the medium term. The current net speculative position is less than 12% of open interest while for Gold it is 26.5%.  

We've been prepared for downside with hedges and cash and now we are thinking that the miners could break towards their December lows. Of course we've thought so for the last few weeks so time will tell. In any event we are waiting for that buying opportunity. Patience is now the key over the coming weeks.


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Thanks for reading. I wish you all great health and prosperity in 2014. 



Disclaimer: Sponsor Companies are paid sponsor companies of website and this free newsletter. Do not construe sponsorship with a recommendation. The author of this newsletter is not a registered investment advisor. This newsletter is intended for informational and educational purposes only and should not be considered personalized and individualized investment advice. Investment in the precious metals sector contains significant risks. You should consult with an investment advisor and due your own due diligence before making any investment decisions. This email may contain certain forward looking statements which are subject to risks, uncertainties and a multitude of factors that can cause results and outcomes to differ materially from those discussed herein. 

Argonaut Gold Corvus Gold
Balmoral Resources
Bear Creek Mining