Market Alert and Stock Selection Update Emails

Stock Selection Update #97, 5th January 2021

2021 started with a volatility surge in the financial markets. The most plausible explanation is nervousness regarding the outcome of the Georgia run-off elections scheduled to take place in the US on Tuesday 5th January.

The nervousness stems from the possibility that the Democratic Party will win both run-offs, giving it control of the Senate and thus control of the government (since the Democrats already control the House and the Presidency). This would be a long-term negative for the US economy because it almost certainly would result in greater government spending and regulation of business than would be the case under the split government that exists today.

On Monday 4th January, concerns about the long-term risks associated with the Democratic Party taking control of the government caused the S&P500 Index to lose 1.5% and the VIX to spike up to an intra-day high of 29.2 before closing at 27 (the VIX ended last year at 22.7). The same concerns also caused the US$ gold price to break upward from its 5-month channel, thus signalling an extension of the short-term upward trend that began in late-November.

We can be sure that the primary catalyst for Monday's market moves was the partial discounting of the Democrats winning both Georgia runoffs because the cannabis sector was very strong. For example, HMLSF, a marijuana ETF, was up 4% and Cronos (CRON) was up almost 10% on the day.

Regardless of what happens this week, federal US government legalisation of cannabis is inevitable. However, it probably will happen sooner if the Democratic Party gains control of the government.

As mentioned in the latest Weekly Update, the Democratic Party winning both run-off elections would be short-term bullish for the cannabis sector but could result in a brief shakeout for the broad market, whereas the Republican Party winning at least one of the two run-off elections could be taken as short-term bearish for the cannabis sector but probably would give the broad market a brief boost. However, at this stage we don't expect this week's US political events to alter any of our intermediate-term market views. For example, regardless of whether the Democrats gain control of the Senate or the Republicans retain control of the Senate, it's likely that we will remain intermediate-term bullish on the cannabis and industrial commodity sectors.

In the latest Weekly Update we wrote:

"Another part of our plan is to boost our exposure to cannabis on short-term weakness. At the moment this involves averaging into Cronos (CRON) call options that are 6-12 months from expiry, but we are on the lookout for reasonably-valued cannabis stocks that are focussed on the rapidly-growing US market."

The main purpose of this email is to advise that we have identified an interesting US-focussed cannabis speculation. It is a SPAC (Special Purpose Acquisition Company) called Subversive Capital Acquisition Corp. (https://www.subversivecapital.com/) that trades in the US OTC market under the symbol SBVCF and in Canada under the symbol SVC.A.U (the "U" suffix indicates that it is priced in US dollars even though it trades in Canada). The plan is for the company to de-SPAC (to be converted into normal shares) later this month, at which point it will be called The Parent Company. Here's how the company describes itself:

"The Parent Company (TPCO Holding Corp.) (OTCQX: SBVCF, NEO: SVC.A.U, SVC.WT.U) will be California's leading vertically-integrated cannabis company combining best-in-class operations with leading voices in popular culture and social impact. The Parent Company brings together global icon and entrepreneur Shawn "JAY-Z" Carter, entertainment powerhouse ROC NATION, California's leading direct-to-consumer cannabis platform CALIVA, and leading cannabis and hemp manufacturer, LEFT COAST VENTURES, to form a cannabis industry leader for the post-prohibition era. Chief Visionary Officer Shawn "JAY-Z" Carter, one of the most recognized and celebrated entrepreneurs of our time, will guide The Parent Company's brand strategy in partnership with Roc Nation, the world's preeminent entertainment company with a roster of culture-making artists, athletes and influencers."

The Parent Company will have 124M shares, giving it a market cap of about US$1.25B at Monday's closing price of US$10.13. Also, in addition to the businesses noted above it will have US$575M of cash, meaning that almost half of the current market cap is accounted for by cash.

This is a rank speculation, because there currently isn't enough information to estimate the company's future sales and earnings. We think it's a reasonable speculation, though, because the story could capture the investing world's attention over the coming 12 months if the cannabis sector performs well and because the downside risk is somewhat limited by the company's cash.

We have added SBVCF to the TSI List at Monday's closing price of US$10.13 as an intermediate-term trading position. Also, to gain increased leverage to the company's potential success we have added the warrants, which trade in Canada under the symbol SVC.WT.U, to the TSI List at Monday's closing price of US$1.64. The warrants have an exercise price of US$11.50 and an expiry date of 16th July 2024.

Be sure to use limit orders when trading either the stock or the warrants.

Stock Selection Update #96, 20th December 2020

As previously advised, there is no Weekly Update for this week. We will then return to our normal publishing schedule, although this week's Interim Update probably will be posted a day earlier than normal (on Wednesday instead of Thursday) due to the major financial markets being closed on Friday for Christmas.

The main purpose of this email is to review the latest significant news from stocks that we are following at TSI (see below). This is information that usually would be included in the Weekly Update. In one case (Premier Gold), the news is very important.

The secondary purpose is to advise that our short-term and intermediate-term outlooks did not change over the past week for any of the markets we follow closely. Here's a brief overview:

1) The Dollar Index (DX) appears to be on its way to a near-term test of long-term support at 88. We expect that the overarching trend towards a weaker US$ will persist for many months to come, although the US currency is sufficiently oversold to enable a 1-3 week rebound.

2) The S&P500 Index (SPX) is still following the seasonal pattern that involves an upward grind to a top during January.

3) The oil price almost reached US$50/barrel last week. As we mentioned a week ago, if the factions within the US government agree on a substantial stimulus package in the near future then the oil price could hit $55 before the next meaningful correction gets underway.

4) The industrial and specialty metals markets are very 'overbought' and vulnerable on a short-term basis, but these markets probably will remain in intermediate-term upward trends -- partly in response to US$ weakness -- for many months to come. The stocks of mining companies focussed on copper, zinc, nickel, lithium and REEs generally have performed well over the past 8 months and should continue to perform well for at least the next 6 months, but don't forget to harvest some gains after stock prices rise sharply.

5) Gold and the Treasury Bond, the two most important safe havens, are trying to 'carve out' short-term bottoms. Gold is doing better at the moment because in addition to benefiting from declining economic confidence it benefits from US$ weakness.

6) The US$ gold price signalled an upward reversal of its short-term trend last Thursday. Such signals usually don't create immediate buying opportunities, but buying opportunities can be created by subsequent pullbacks.

We now turn to the past week's company news:

*Africa Oil (AOI.TO) has received the sixth dividend associated with its 50% ownership of Prime Oil and Gas (POG), a company that holds interests in deep-water Nigeria production and development assets. The latest dividend was US$37.5M.

AOI has received dividends totalling US$200M since acquiring its POG stake on 14 January 2020. The cost of the acquisition was US$520M, so in 11 months AOI already has been paid dividends amounting to almost 40% of the purchase price. Clearly, the POG acquisition was a very good deal for AOI.

AOI is an undervalued oil stock. It has significant country risk (Nigeria and Kenya, primarily), but we think that the current risk discount is excessive.

*Matador Mining (MZZ.AX) reported drilling results from its Cape Ray gold project in Newfoundland. The results were satisfactory, but not game-changers. The best intercept was 20 metres at 5.08 g/t Au from infill drilling.

The drilling program is complete, but there are 31 holes for which assay results are pending. These results should be reported during the first quarter of 2021, so MZZ should have decent news-flow over the coming three months.

*Premier Gold (PG.TO) issued three important press releases last week.

The first announced that Orion Mine Finance had agreed to purchase Centerra Gold's 50% stake in the Hardrock gold project (Ontario) for US$225M plus some contingent payments estimated to be worth US$75M. PG owns the other 50% of the project, so this deal places a value of US$225-$300M (C$1.20-$1.60 per share) on PG's stake in the project.

The second advised that an updated FS for the Hardrock project had estimated an after-tax NPV(5%) and IRR of US$1.8B and 29%, respectively, for the project at a gold price of US$1800/oz. Applying a 50% risk discount, this suggests a current value of about US$450M (C$2.40 per share) for PG's 50% stake in the project.

Although the above-mentioned developments are positive, from our perspective they were made largely irrelevant by the announcement that the company has agreed to be purchased by Equinox Gold (EQX, EQX.TO). Under the proposed deal, each PG share will be exchanged for 0.1967 EQX shares plus 0.40 shares of a new company called i-80 Gold. The new company, which initially will be focussed on gold in Nevada and will be owned 70% by existing PG shareholders and 30% by EQX, will own the South Arturo and McCoy-Cove properties. Also, the plan is for i-80 to complete Premier's previously announced acquisition of the 2M-ounce development-stage Getchell project.

The market currently is valuing the deal at C$3.15 per PG share, which is about 25% above the price immediately prior to the announcement.

We view the deal as a short-term plus because a) it has boosted PG's stock price to a 2-year high and b) the promotion associated with the deal and the institutional support that EQX will garner if the gold price resumes its multi-year advance could enable PG to do relatively well during the next several months. However, we think the deal is a long-term minus for PG because it exchanges assets that are very under-valued (primarily the 50% stake in the Hardrock project) for EQX shares that appear to be fully valued.

We estimate that after completion of the deal and prior to a proposed equity financing, i-80 Gold will have 136M shares and a rough value of C$250M (about C$1.80 per share). Consequently, at EQX's closing share price of C$13.14 on 18th December we think that PG's shares are worth roughly 0.1967*C$13.14 + 0.40*C$1.80 = C$3.30.

We therefore view the shares as a hold (at best) near Friday's closing price of C$3.15. At the current gold price they would be a clear-cut sell near C$4.00 and a clear-cut buy near C$2.50.

We will leave PG in the TSI Stocks List for now, but unless advised otherwise we will remove the stock from the List if it trades at C$3.70.

*Sabina Gold and Silver (SBB.TO) was added to the Junior Gold Miners ETF (GDXJ) last week. This created additional demand for SBB shares last week (GDXJ's initial position was about 17M shares) and should create additional buying pressure in the future during upward trends in the gold mining sector. The other side of the coin is that it could lead to additional selling pressure during sector-wide declines.

That's it for now. We'll be back with more stuff (the Interim Update) in about three days from now.

Stock Selection Update #95, 9th December 2020

This is a very brief note to advise that we are adding Piedmont Lithium (NASDAQ: PLL, ASX: PLL), a development-stage lithium miner with a project in North Carolina, to the TSI Stocks List. The stock closed at US$27.25 in the US on Tuesday and is trading at A$0.35 at the moment in Australia (equivalent to about US$26.00 in the US given that 1 American Depository Share represents 100 ASX-traded shares).

There will be a write-up on PLL included in tomorrow's Interim Update. Suffice to say right now that we see upside potential of more than 80% within the coming 12 months.

It would be reasonable to average into a PLL position over the coming 2 months.

Alert #293, 25th November 2020

As expected, the gold price has dropped to support near US$1800 (Tuesday's low was US$1797). From our perspective this means that there is only about $100 of remaining short-term downside risk and that the short-term risk/reward is neutral.

The gold mining indices/ETFs have extended their downward trends and are now short-term 'oversold', although not dramatically so. It's unlikely that the ultimate correction low is in place, but a consolidation or countertrend rebound could begin at any time.

If instead of rebounding/consolidating for several days the gold mining indices/ETFs accelerate downward, then a tradable bottom probably will be in place by early next week.

Regardless of the longer-term outlook, the coming bottom for the gold mining sector should be followed by at least a 1-2 month rally. Significant additional weakness over the coming days would create a good opportunity to get positioned for this rally.

Further to the above, we will add the GDX March-2021 US$40.00 Call Option to the TSI List if it trades at US$0.80 within the next two weeks. The option currently is priced at US$1.01-$1.05. For it to become available at the aforementioned price within our stipulated timeframe, GDX probably will have to drop to the US$31.50-$32.00 area. In other words, GDX will have to drop by about 6% from Tuesday's closing level.

Although gold and the related equities could become bullish from a short-term trading perspective in the near future, for intermediate-term traders the primary focus of new buying should continue to be the industrial commodities. This means oil, natural gas, copper, zinc, nickel, lead, platinum, fertiliser, lithium, manganese, REEs and uranium. Even coal could do well during the first half of next year.

Alert #292, 24th November 2020

The financial markets are in the process of discounting an economic revival during the first half of 2021. The markets could be wrong, but we don't think they are. A consequence of this discounting process is the recent weakness in counter-cyclical gold and the recent strong rebounds in pro-cyclical investments such as O&G (oil and gas) stocks and bank stocks.

On Monday 23rd November the gold price finally broke below support at US$1850 and the HUI finally dropped to support in the 280s. This was not a surprise given the way the fundamental backdrop has been evolving. For gold bullion it's still the case that prior to a correction low a test of support near US$1800 is likely and a test of support near US$1700 is possible. For the HUI, a test of support at 250-260 is becoming increasingly likely prior to a correction low. This implies that we perceive additional near-term downside risk of about 10% for the HUI.

Note that while the gold mining indices/ETFs are now sufficiently stretched to the downside to prompt a rebound, there is no reason at this time to expect anything more than a 4-8 day countertrend reaction.

Also on Monday 23rd November the Dollar Index (DX) completed another test of support near 92.0. This was the fourth such test since mid-August.

A downside breakout in the DX would boost the US$ gold price and the gold mining sector, but it probably would do more for the surging O&G sector. The other side of the coin is that evidence of an upward trend reversal in the DX would put downward pressure on the prices of most commodities and probably cause short-term weakness in the O&G sector. This would create the next good opportunity to beef-up exposure to industrial commodities.

We continue to expect an eventual downside breakout in the DX, but we also continue to acknowledge the potential for a strong 1-2 month countertrend rebound. The risk of a rebound to 96-98 will persist until the resumption of the DX's multi-year decline is confirmed via a weekly close below 91.75.

Alert #291, 10th November 2020

In the Market Update posted on Sunday, we wrote: "Our guess is that there will be a pullback this week and then an extension of the post-election rally that takes the SPX to a new all-time high before the end of November. That, we think, would exhaust the short-term upside potential unless there is good news regarding a COVID-19 vaccine or treatment."

Good news regarding a COVID-19 vaccine was announced prior to the start of trading on Monday and in response the SPX immediately surged to a new all-time high, but a pullback then began. The SPX set its high for the day and possibly even its high for the year during the first 10 minutes of trading on Monday 9th November.

From our perspective, far more interesting than the momentary new highs achieved by some US stock indices on Monday was the internal rotation away from the 'stay at home' stocks that have been relative strength leaders for the bulk of this year to the cyclical stocks that have been laggards for a long time.

The strength among the cyclicals is evidenced by Monday's 13.5% moon-shot in the Bank Index (BKX) and the amazing 39% rise in the stock price of cruise-ship company Carnival (CCL). Also of note was the strength in the oil sector. For example, Schlumberger (SLB) and BP Amoco (BP), two major oil producers that we are betting on via long-dated call options, were up by 20% and 16%, respectively. Some other large-cap oil stocks did even better. Examples include the 22% gain by Occidental (OXY), the 24% gain by Suncor (SU) and the 22% gain by Canadian Natural Resources (CNQ).

The weakness among the 'stay at home' plays is evidenced by the 9% decline in Netflix (NFLX), the 17% decline in Zoom (ZM), the 5% decline in Amazon (AMZN) and the 2% decline in the NASDAQ100 Index (NDX).

Counter-cyclical and safe-haven plays such as gold and T-Bonds were sharply lower on Monday as the market began to discount the superficial economic strength that will, we think, appear during the first half of 2021.

The US$ gold price dropped all the way back to its September-October lows in the mid-$1800s and in doing so negated last Thursday's upside breakout. We expected a pullback this week, but not such a steep one. We would have anticipated a larger pullback had we known about the imminent vaccine news.

In any case, Monday's price action is an example of why it generally isn't a good idea to buy in reaction to an upside breakout. Generally it is better to buy pullbacks to support than to buy breaks above obvious resistance.

The US$ gold price hit support on Monday and probably will bounce over the next few days as the financial markets partially retrace Monday's big moves, but there is now a high risk of our Gold True Fundamentals Model (GTFM) turning bearish (the GTFM actually turned bearish on Monday 9th November, but official changes in the Model are determined by the weekly closing levels of its seven inputs). We continue to think that rising inflation expectations will push the US$ gold price to new highs during the first quarter of next year, but we also continue to think that the industrial metals will outperform gold for at least another six months (gold tends to be weak relative to the industrial metals when inflation expectations are rising).

The gold mining indices/ETFs held up well on Monday, so much so that the HUI/gold ratio remains above its 40-day MA. The HUI still has to achieve a daily close above 347 to confirm an upward reversal of its short-term trend, but, as reiterated in the latest Weekly Market Update, it makes sense to scale into gold mining ETFs or your favourite gold stocks on weakness in preparation for a new multi-month, or possibly even multi-quarter, upward trend. We are now getting some weakness.

We wrote about Goldmoney Inc. (XAU.TO) in last week's Interim Update, and concluded:

"...as long as the shares are purchased when they are trading near book value (BV), owning XAU shares is a reasonable way to build up indirect ownership of PMs. Owning the shares has the added advantage that if the company is well-managed then the amount of physical metal per share will increase over time.

The current BV is C$2.28/share including goodwill and C$1.79/share excluding goodwill. We think the latter number is the more relevant and therefore that the shares would be very attractive for long-term investment purposes at around C$1.80. However, the current premium to the C$1.79/share BV is not excessive, so if you are interested in XAU then it could make sense to take an initial position near the current market price of C$2.18.

We will add XAU to the TSI Stocks List as a long-term position if it drops to around C$1.80."

XAU reported a good set of quarterly financial results on Monday, including an increase in the BV (excluding goodwill) to C$1.84/share. The low-C$1.80s still would be the optimum place for new buying, but we have decided to add the stock to the TSI List immediately as a long-term position at Monday's closing price of C$2.24.

Alert #290, 22nd September 2020

The HUI must close below 320 to confirm that the August-September cycle worked this year (for the sixth year in a row). It didn't do that on Monday 21st September, but there's a risk that it is tracing out a crash pattern and will plunge within the next two weeks. Gold bullion closed below support at US$1920 on Monday. This was a downside breakout, but the breakout must be confirmed by a second daily close or a weekly close below support. The price of silver bullion fell far enough on Monday to remove any remaining doubt that a multi-month top was put in place last month.

The recent weakness in the prices of precious metals, industrial commodities, mining stocks and the senior US stock indices was accompanied by only a hint of strength in the US$. At this stage the Dollar Index (DX) hasn't even reached its first meaningful resistance level (94). Imagine what will happen to equity and commodity prices if the DX rises to 98, which it could well do within the next two months as part of a countertrend move within a cyclical bear market.

A routine intermediate-term correction often will result in a test of the 200-day MA. As we've mentioned many times in TSI commentaries over the past several weeks, we think that 200-day MAs define the short-term downside risk for gold, silver and the gold mining indices/ETFs. Currently, that means we perceive short-term risk to US$1700-$1750 for gold, US$19 for silver and 260 for the HUI.

The ultimate correction lows could be higher, but be aware that declines to the aforementioned levels would not be outside the bounds of normal corrections. October continues to be the most likely time for a correction low.

We won't be surprised if there's a 1-3 day bounce this week from a Monday-Tuesday low. A routine countertrend bounce at this point would take gold up to around US$1940, silver up to US$25.50-$26.00 and the HUI up to 340-345. If a bounce to these levels occurs within the next three trading days it should be viewed as another short-term selling/hedging opportunity.

Alert #289, 31st August 2020

2020 is the year that the world went -- to use the scientific term -- totally bonkers.

Here in Queensland, Australia, the average person has a much better chance of being struck by lightning than getting seriously ill from COVID-19, but whenever there's a new case of the flu it's big news and if there are two cases of the flu in one area then that area is called a "hot spot" and the state government starts talking about imposing restrictions.

In the US, within the past few months there was the largest increase in personal income in parallel with the worst economic conditions and highest unemployment since the Great Depression.

In the US stock market, the way things are going Tesla (TSLA) will soon be 'worth' more than the entire global car industry, despite still being unable to generate a profit from making cars (more than 100% of Tesla's reported profits come from selling carbon credits). We admire the company and its product, but it now may be the biggest single stock bubble in history. The valuation of Apple (AAPL) is almost as ridiculous. This computer/phone maker is now being valued at around 2-times the entire Russell2000 and about 1.5-times the GDP of Australia, despite having achieved minimal earnings growth over the past few years and having minimal scope for substantial earnings growth over the next few years.

Anyhow, the main purpose of this email isn't to rant about the current insanity, it is to follow up on a comment we made in the 27th July Weekly Update. The comment was: "Taseko Mines (TGB) ended last week at US$0.77. Further to the discussion in the "Commodities" section of today's report, it will be removed from the TSI List if it trades at US$0.95 before the end of August."

TGB traded as high as US$0.98 on Monday 31st August and ended the day at US$0.96, so it has been removed from the TSI List. Based on the assumed exit price of US$0.95, the stock has gained about 100% since the start of this year and about 120% since being added to the List in September of last year.

It's important to have exposure to copper because both the commodity and the related equities probably will trade at much higher prices within the next 9 months. Therefore, if TGB is your only copper exposure then perhaps only sell half at this time.

This is a critical short-term juncture in the financial world because we are about to get either a downside breakout or an upward reversal in the Dollar Index (DX). It's a good bet that the former would lead to upward acceleration in the prices that have been trending higher over the past few months, while the latter would usher-in significant corrections in the markets that have rallied over the past few months. We think it's important to be hedged against the latter possibility while maintaining core exposure in line with the US dollar's cyclical bearish trend.

Alert #288, 11th June 2020

The stock market correction we've been expecting has begun. In addition to being confirmed by the performances of many stock indices, this has been confirmed in decisive fashion by the Volatility Index (VIX). The VIX declined steadily from mid-March to Wednesday of this week and then achieved a clear-cut upward reversal on Thursday 11th June.

A normal correction would retrace about half of the rally from the March low. This is roughly what we expect, which gives us a short-term target of around 2700 for the S&P500 Index (SPX).

The SPX has round-number and 200-day moving-average support near Thursday's closing price of 3002, so we won't be surprised if there's a rebound attempt on Friday. However, given that the correction is only three days old it's unlikely that the aforementioned support will hold for long.

The relatively weak parts of the market could retrace substantially more than 50% of their post-crash rallies. For example, if the SPX retraces 50% of its rally then the Dow Transportation Average probably will retrace at least 70% of its rally.

Turning to the gold mining sector, for the sixth time in the past seven trading days the HUI tested support at 260 on Thursday 11th June. The support held yet again, but Thursday was an 'outside down' day and negated the previous day's positive price action.

From our perspective, a break below 260 followed by a quick decline to 220-230 would be ideal because it would create a new sector-wide buying opportunity.

Lastly, we note that Enable Midstream Partners (ENBL) closed below its trailing stop on Thursday and has been removed from the TSI List. Including the dividend that was paid last month, the result of the trade was a gain of 63%.

As is the case with the oil ETFs that were stopped out on Wednesday of this week, we remain intermediate-term bullish on ENBL and will be looking for an opportunity to return it to the List.

Stock Selection Update #94 - 8th May 2020

We are going to 'dip a toe' into the oil tanker trade that we first mentioned about 2.5 weeks ago. We were planning to wait for evidence that oil's short-term price rally was near its end before initiating this trade, but the quarterly financial results published by Euronav (NYSE: EURN) on 7th May have convinced us that it's time to act (EURN owns the world's largest independent tanker fleet). The risk/reward now appears to be very attractive.

EURN's results for the March-2020 quarter (Q1-2020) were excellent. Revenue was up 80% year-over-year (yoy) and 17% quarter-over-quarter (qoq). More significantly, earnings per share was up by about 1,000% yoy and 40% qoq. Most significantly, the company announced that next month it will pay a dividend of US$1.10/share, which comprises a final dividend of US$0.29 associated with 2019 and a dividend of US$0.81 associated with the first quarter of this year. The stock goes 'ex' the 0.29 dividend on 28th May and 'ex' the 0.81 dividend on 15th June, so buyers near the 7th May closing price of US$10.03 will obtain a dividend yield of 11% almost immediately.

During Q1 the company achieved an average spot rate for its VLCCs (Very Large Crude Carriers) of US$73K/day, but it advised that during Q2 to date it is averaging US$95K/day for these ships. This suggests that the Q2 financial performance will be even better than the Q1 performance.

After gaining about 4% on Thursday 7th May in reaction to its latest financial results, EURN is trading at only 2.5 times annualised Q1 earnings. This suggests that the market expects tanker rates to collapse during the second half of this year. One implication is that if it starts to look like tanker rates will remain elevated for another 2-3 quarters then there will be a substantial upward re-rating of the stock price. Another implication is that with the market having fully discounted a return to the much lower tanker rates that prevailed 12 months ago, the risk from here is low. That's why we say that the risk/reward looks very attractive.

Further to the above, we have added EURN to the TSI List at Thursday's closing price of US$10.03 as a trade with an expected duration of 3-9 months. Also, our aim is to add a second tanker stock (probably Frontline (NYSE: FRO), which reports its quarterly financial results on 29th May) to the TSI List within the next few weeks.

On a separate matter, in this week's Interim Update we wrote that we would add the IWM (Russell2000 ETF) October-2020 $100 put option to the TSI List if it traded at US$4.00. It traded as low as US$4.10 on Thursday and ended the day at $4.16-$4.25, which is close enough. We have added the option to the TSI List at roughly the mid-point of the aforementioned bid-ask spread ($4.21).

Alert #287, 23rd March 2020

Under the current monetary system, deflation scares lead to more inflation. The bigger the deflation scare, the more aggressive the reactionary money-pumping by the central bank and the greater the future inflation. That's why there has been no genuine deflation in the US since 1933 and why it's almost guaranteed that there won't be any for the foreseeable future. In fact, the ferocity of the current deflation scare and the actions that are being taken to combat it ensures that there will be a lot more inflation, of both the monetary kind and the price kind, over the next few years than otherwise would have been the case.

Prior to the opening of the US stock market on Monday of this week a warm, fuzzy and caring Federal Reserve ramped up its efforts to support the economy in these times of trouble. In effect, it announced (refer to: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm) that it was prepared to buy almost any "investment-grade" asset, including commercial mortgage-backed securities, corporate bonds and securities backed by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration (SBA). The Fed also announced that it was getting involved in direct lending to businesses of all sizes.

The stock market didn't respond positively to the Fed's latest attempts to help, but, as we wrote in the 18th March Interim Update, the Fed will keep throwing stuff at the wall until something sticks.

Although the Fed's latest plan didn't have an immediate positive effect on the stock market, it boosted inflation expectations and in doing so reduced the real US interest rate (the real interest rate is the nominal interest rate minus the EXPECTED rate of currency depreciation). This caused the fundamental backdrop to shift in gold's favour, leading to a US$80 increase in the gold price -- to resistance in the $1560s.

We wrote in the latest Weekly Update that a routine countertrend rebound could take the gold price up to the mid-to-high $1500s, meaning that Monday's gold price surge falls within the bounds of a routine countertrend move. However, the actions being taken by the Fed could put a higher floor under the gold price and enable gold to test its Q1-2020 peak by May-2020. That being said, we doubt that gold will embark on a new intermediate-term advance until there has been a more substantial reduction in speculator long interest than has occurred to date.

The Fed's announcement and gold's reaction to the announcement prevented GDXJ from trading at our suggested buy limit (US$22.50) on Monday, but given the on-going extreme volatility it isn't out of the question that an opportunity to buy at this price will emerge within the next few days.

Alert #286, 17th March 2020

TSI is not a short-term trading service, but the crazy market environment of the past three weeks has prompted numerous email updates in addition to our regular commentaries. The main reason for this email is to update some recent trade suggestions.

1. The email sent at around this time yesterday confirmed the additions to the TSI List of GDXJ and a GDX call option at/near the open on Monday 16th March and also noted the prices at which these positions would be exited. The stipulated exit prices were reached on Tuesday 17th March. As a result, GDXJ was exited for a quick gain of 57% and the GDX call option was exited for a quick gain of 337%.

2. The SLV (Silver ETF) May-2020 $14.00 call option mentioned in yesterday's email traded at our stipulated buy price of US$0.43 on Tuesday and has been added to the TSI List at that price. We doubt that this SLV call option will provide the sort of immediate gratification that was provided by the GDX call option added a day earlier, but we expect that there will be an opportunity to exit with a sizable profit prior to the 15th May expiry date.

3. In yesterday's email we wrote that the TBT (a leveraged T-Bond bear fund) January-2021 $20.00 call option would be added to the TSI List if it traded at US$1.30. The T-Bond price plunged on Tuesday, so there is little chance of the TBT call option trading at our buy limit anytime soon. Also, thanks to recent restrictions put in place by the SEC to 'protect' retail investors from themselves, it is not possible for most people to buy TBT or the associated options. Therefore, we are cancelling our TBT trade suggestion. Note, though, that an opportunity to establish a bearish T-Bond speculation via another means may present itself during the May-June period in parallel with a test of the stock market's March low.

4. We are not going to add a specific trade to the TSI List, but we like the idea of buying the British Pound near its current level (1.21-1.22 relative to the US$). The current level constitutes another test of the 8-year cycle low.

In just two days the HUI has retraced about half of its preceding crash. If we are dealing with a routine countertrend rebound, then it won't go much higher before pulling back to test the crash low.

It will be reasonable to assume that we are dealing with a countertrend rebound in the gold sector and that a test of Monday's low is coming unless the HUI achieves consecutive daily closes above its 200-day MA (currently at 214).

Finally, some thoughts about the relatively cheap precious metals:

The silver price could go lower. However, if you are a value-oriented investor positioning for the next 1-2 years as opposed to a trader attempting to scalp short-term fluctuations, this is beside the point. The point is: If you aren't going to buy silver after it has just dropped to a multi-CENTURY low relative to gold and an 11-year low relative to the US$, then when are you going to buy it? After the price has rocketed upward and everyone is bullish?

The same applies to platinum.

Looking from a different angle, gold is now more expensive than it has ever been. Not relative to the SPX, but relative to silver and platinum. Almost anything can happen in the short-term, but generally you will do better by purchasing things that are extremely cheap than by purchasing things after they have become extremely expensive.

Alert #285, 16th March 2020

The Fed didn't even have the decency to wait until Wednesday's FOMC meeting. Instead, it panicked and fired its monetary bazooka on Sunday in the US. However, rather than support the stock market the vision of a central bank in panic mode ramped up the level of panic in the financial markets and extended the stock market's crash by a day.

Although the US stock market suffered one of its worst single-day percentage declines in history on Monday 16th March, last Thursday still stands as the US stock market's internal extreme. This is because the NYSE and NASDAQ McClellan Oscillators were higher at the close of trading on Monday than they were last Thursday and because on both the NYSE and the NASDAQ a smaller number of individual stocks made new 52-week lows on Monday than they did last Thursday.

On Monday the most dramatic price action occurred in the precious metals markets and the associated sector of the stock market. The US$ gold price plunged to our $1450 target and rebounded, which was neither unexpected nor dramatic. However, the silver price collapsed from last week's close of $14.50 to as low as $11.77 (the lowest price for this metal since 2009) before recouping part of its loss to end the day at $12.82. This was incredible and certainly not expected, but the price action in the platinum market was even more incredible. The US$ platinum price collapsed from last week's close of $744 to as low as $562 (the lowest price since 2002!!) before recouping part of its loss to end the day at $658, a 17-year low. And as if that wasn't spectacular enough, GDX and GDXJ, the two most popular gold mining ETFs, spiked down by 10%+ at the start of trading on Monday before reversing course and ending the day with gains of 18%-20%. Note that despite the impressiveness of Monday's upward reversal, at this stage we aren't anticipating anything more than a strong countertrend rebound in the gold mining sector.

Also of interest is that during Monday's panic the T-Bond (basis the June-2020 futures) traded well below the $192 spike high registered a week earlier. As noted in the latest Weekly Update, the T-Bond probably has just made a multi-week top and possibly has just made a long-term top.

The main purpose of this email is to update the status of the two trades suggested in the Weekly Update published on Sunday and to mention some other trades or potential trades.

In the Weekly Update we wrote that a short-term trading position in GDXJ would be added to the List at the opening price on Monday 16th March as long as the opening price was below $22.50. GDXJ opened at US$19.80 and has been added at that price. We also wrote that the GDX May-2020 $23.00 call option would be added to the List if it traded at US$0.80. The option opened at $0.80 and traded as low as $0.70, so it has been added at $0.80. These trades are already up by 35% and 200%, respectively.

Here are the new trades:

1. PPLT (the Physical Platinum ETF) will be added to the TSI List at Monday's closing price of US$62.06.

2. Short-term traders and long-term investors should consider buying SLV (the Silver ETF) near Monday's closing price of US$12.00. However, for TSI record purposes the SLV May-2020 $14.00 call option will be added if it trades at US$0.43.

3. The TBT January-2021 $20.00 call option will be added to the TSI List if it trades at US$1.30. Note: TBT is a leveraged ETF that moves in the opposite direction to the T-Bond, so this is a potential bearish T-Bond speculation.

4. The GDXJ trading position added on Monday will be exited if GDXJ trades at US$31.00 and the GDX May-2020 US$23.00 call option added on Monday will be exited if it trades at US$3.50.

As long as you do a reasonable job of managing money and always maintain a sizable cash reserve, then you always have a choice during financial-market panics: You can panic with everyone else, or you can take advantage of everyone else's panic. You also have to be able to sleep at night, so you shouldn't make portfolio changes that result in a lot of stress.

Alert #284, 13th March 2020

Due to the extraordinary reactions to the coronavirus combined with the massive central-bank-sponsored build-up in debt and leverage over many years, the stock market situation keeps getting more extreme. On Thursday 12th March, for example, the number of individual NASDAQ stocks making new 52-week lows hit an all-time high and the NASDAQ McClellan Oscillator hit an all-time low. Also, for the first time during this decline we got notable extremes in the equity put/call ratio on Thursday. Specifically, there was an 8-year high in the 10-day MA of the equity put/call ratio and an 11-year high in the 5-day MA of the equity put/call ratio.

The US stock market has experienced this type of crash before. For example, it did so in 1987 and in 2008. The current crash is different from all the others, though, in that it started with the senior stock indices at all-time highs. There was no preceding crash pattern or bearish trend. This could mean that whatever low is put in place this month will not be tested; in other words, that there will be a V-shaped recovery. However, we still favour the idea that the crash extreme will be tested before something more bullish than a multi-week rebound becomes possible.

The gold mining sector has experienced a full-blown crash of its own. This shouldn't have taken any TSI readers by surprise, because we were warning about this possibility during January-February -- when there was still time to take protective measures. Also worth mentioning is that the silver price has dropped to the lower boundary of the range in which it was expected to bottom ($15.50), but at this time there is no evidence that the bottom is in.

For our own account, this week we have been 'buying into the hole'. We bought ENBL shares at US$3.40, PEY.TO shares at C$1.45, and OIH shares at US$4.98 and US$4.08 (for an average of US$4.53). Apart from ENBL, the other purchases are well underwater. We also have exited all remaining put options. To a large extent, the profits on the put options paid for the new purchases and our cash reserve is roughly unchanged.

For TSI record purposes, Trilogy Metals (TMQ), an exploration-stage base metals miner, hit our targeted US$1.10 buy price on Thursday and has been added to the List at that price. Also, the Deutsche Bank (DB) January-2021 US$5 put option hit our US$1.00 sell price on Thursday and will be removed from the List. Based on the December-2019 US$0.38 entry price, the result was a gain of 163%. Note that there is a DB call option in the List that we plan to exit on a rebound within the next few months.

In this market environment it is important to proceed slowly with new buying and to maintain plenty of 'dry powder'. Also, given that almost all stocks have been pummelled regardless of quality, at the moment there is no reason to buy the most speculative/risky stocks.

Alert #283, 10th March 2020

We have been expecting a test or breach of the 28th February low (around 2850 for the SPX), but not as soon as this week. In broad-brush terms, the expected pattern involved 1) an initial extreme, 2) a choppy multi-week rebound that retraced about half of the initial decline, and 3) another leg down that either successfully tested or decisively breached the price at the initial extreme. The time from the initial extreme to the final low is usually 5-8 weeks, which is why we wrote in the latest Weekly Update that a decline this week that resulted in a daily close below the 28th February low would be a significant deviation from the expected pattern.

Due to adding the news over the weekend of an 'oil price war' between Saudi Arabia and Russia, the world's two largest oil-exporting countries, to the on-going stream of negative news regarding the coronavirus, the stock market crashed anew on Monday 9th March and the SPX closed about 100 points (3.5%) below its 28th February low. Furthermore, there was sufficient market-wide panic on Monday 9th March to drive several technical indicators beyond the extreme levels reached on 28th February. For example, on Monday there was an 8-year low in the NASDAQ McClellan Oscillator, an 11-year high in the VIX, a rise in the gold/silver ratio to test its 70-year high near 100, and the second-largest number ever of individual NASDAQ stocks making new 52-week lows on a single day.

This suggests that 28th February wasn't the initial extreme. Instead, it looks like the initial extreme will be put in place this week. There should then be a volatile multi-week rebound followed by a decline that tests (or breaches) this week's low.

Turning to gold and the related investments, again on Monday the difference between gold bullion and gold-mining stocks was on full display. The bullion is a safe haven and made a marginal new 7-year price high before ending the day approximately unchanged, while the gold mining indices plunged with the broad stock market.

In the email sent to subscribers prior to the start of Monday's US trading session we wrote that Enable Midstream Partners (ENBL), an owner/operator of natural gas (NG) processing facilities and pipelines, would be added to the TSI List at the average price recorded over the first 30 minutes of trading. This worked out to be US$3.40. The stock spent most of the day oscillating around $3.40, but during the final 30 minutes of trading it collapsed and recorded an extraordinary closing print of US$1.86. This closing print is suspect, though, because the closing bid-ask was US$2.57-$2.58.

As well as adding it to the TSI List, we took an initial position in ENBL for our own account at US$3.40. We plan to buy more if there's an opportunity to do so near US$2.00 on Tuesday, but we doubt that this opportunity will present itself.

By the way, the natural gas price was up on Monday, so the massive price declines in NG-related equities on Monday were totally sentiment-driven.

In the same email we wrote that we would add base metals explorer Trilogy Metals (TMQ) to the TSI List if it became available at US$1.10 and that the Deutsche Bank (DB) Jan-2021 US$5.00 put option would be removed from the List if it traded at US$1.00. Neither of these limits were reached on Monday, but the stipulated add/remove prices will remain applicable unless advised otherwise.

Stock Selection Update #93 - 9th March 2020

Market volatility has become even more extreme and there will be a huge move -- initially to the downside -- in the US stock market today (Monday 9th March).

This is a very brief note to confirm that we still think it makes sense to take a trading position in Enable Midstream Partners (ENBL). However, due to the incredible volatility we will use the average price over the first 30 minutes of trading today as our entry price for record purposes. Also, we will add a long-term position in Trilogy Metals (TMQ), an exploration-stage copper miner that was discussed in the 26th February Interim Update, if it trades at US$1.10.

Lastly, today would be a reasonable time to exit the Deutsche Bank (DB) January-2021 US$5 put option added as a hedge in December. For TSI record purposes, the put will be exited if it trades at US$1.00.

Alert #282, 3rd March 2020

Based on the technical extremes registered late last week, a strong stock market rebound was almost inevitable early this week. The same technical extremes project that last week's price lows will be tested or breached within the next few weeks. As summed up in the latest Weekly Update: After the crash comes the rebound and after the rebound comes a test of the crash low.

In the US stock market, Monday's strong rebound was focused on the mega-cap stocks that were responsible for a disproportionately large amount of the market's upside during the 12-month period prior to the February-2020 peak. AAPL, for example, gained 9.3% on Monday. At the same time, the Dow Transportation Average was up by less than 1% on Monday and the bounce in the NYSE Advance-Decline Line was unimpressive.

The next 1-2 months probably will contain a lot of big moves in both directions, so don't read too much into any single daily price move.

For the gold mining stocks, the situation is similar. Sustainable lows probably weren't put in place last week and daily price volatility should remain elevated, so don't be in a hurry to buy. At least, don't be aggressive with new buying.

Alert #281, 27th February 2020

We wrote in yesterday's Interim Update that sentiment indicators weren't showing much fear. Well, what a difference a day makes! Some sentiment indicators are now showing extreme fear and the market is almost as 'oversold' on a short-term basis as it ever gets.

We now have the VIX near 40, which is close to a 5-year high. Also, the proportion of NYSE-traded stocks that are above their 50-day MAs is now only 8.4%, which is close to a 9-year low. Most significantly, the NASDAQ and NYSE McClellan Oscillators at their lowest levels since 2011.

It's rare for the first 'oversold' extreme to mark the correction low. What almost always happens is that the first 'oversold' extreme is followed by a 1-3 week bounce and then a decline that successfully tests or breaches the low that coincided with the initial extreme.

The gold mining indices and ETFs fell by a lot more than the senior US stock indices on Thursday 27th February. For example, both the HUI and GDXJ lost 7%. This is consistent with how the gold mining sector reacts to large declines in the broad stock market.

As we've mentioned many times in the past (most recently in the email sent to subscribers two days ago), when gold mining stocks are stretched to the upside immediately prior to the start of a very sharp decline in the broad stock market the gold miners usually plunge with the broad market. We aren't aware of any exceptions. It's a different story when the gold mining indices/ETFs are at depressed levels prior to the start of a large stock market decline. In that situation it is not uncommon for the gold stocks to rally as the broad market tanks.

As a result of Thursday's price action there is little doubt that the gold sector made a top of at least short-term (1-3 month) importance on Monday 24th February.

Gold bullion is yet to signal a short-term top, but the gold price has failed to rally over the past three days despite the fundamental backdrop becoming even more gold-bullish. The reason, we suspect, is that some of the speculators who piled into gold futures are coming under pressure to reduce leverage and raise cash due to losses elsewhere in their portfolios. As often happens in a panic, they are selling what they can.

We will have a lot to write about in the coming Weekly Update.

Alert #280, 25th February 2020

Clearly, the 10% (or thereabouts) stock market correction we have been anticipating is well underway. In fact, the Dow Transportation Average (TRAN), the main focus of our short-term bearishness, is already down by about 11% from its January high. The SPX peaked last week and has already fallen by 8%.

The decline probably isn't over, but we expect that a 1-2 week rebound or consolidation will begin very soon. Consequently, this is a reasonable time to exit bearish option speculations that expire in March.

The IYT (Transportation ETF) March-2020 $180 put option that was added to the TSI List in mid-January has gained a lot of value over the past two days. It last traded at US$5.80, with a closing bid-offer spread of $5.20-$5.80. At the mid-point of the closing bid-offer spread the gain, based on our entry price of $1.05, is 424%.

If the sell-off continues for just another day or two then the 420% gain could turn into a 1,000%+ gain, but the other side of the coin is that a small rebound over the next three weeks would turn a large gain into a loss (the option expires 3 weeks from this Friday). We therefore think it makes sense to book the profit now.

There are two other options in the TSI List that expire on 20th March: an SPY $270 put that was added on 30th October last year and a TBT $28 call (a bearish T-Bond speculation) that was added on 25th November last year. The TBT call option certainly will expire worthless next month and has no current value. It's highly probable that the SPY put option also will expire worthless next month, although it has some current value (it ended Tuesday's session at US$0.95) and would gain significant additional value if the mini panic in the market continues for a couple more days. It therefore could make sense to retain the SPY put for at least a few more days, but for TSI record purposes we are exiting now and recording a loss of 72%.

Across the three option positions mentioned above, the average gain was 84%.

On a related matter, the gold-mining sector plunged with the broad stock market on Tuesday. There is nothing strange about this. The reason is that when gold mining stocks are 'overbought' immediately prior to the start of a very sharp decline in the broad stock market, the gold miners usually plunge with the broad market. For example, in October of 1987 the gold-mining sector crashed with the broad stock market even though the gold price rose. Physical gold is a safe haven; a share of a gold-mining company is not.

If there is a sizable extension of the stock market's plunge within the next few weeks then the GDXJ May-2020 put option that recently was added to the TSI List as a hedge could gain a lot of value.

Alert #279, 18th February 2020

Prior to this week the gold mining sector had been 'coiling' in preparation for a sharp move in one direction or the other. In the latest Weekly Update we said that the sharp break probably would occur this week.

We didn't have a lot of conviction regarding the direction of the break, but due to the 1980s comparison and the weakness in the gold-mining indices relative to gold the more likely direction was thought to be down. As it turned out, the break was to the upside.

The upside breakouts achieved by the gold mining indices/ETFs on Tuesday 18th February have to be confirmed by weekly closes above resistance. Assuming they are, the minimum upside targets for the indices/ETFs would be the early-January highs. For the HUI that means 246, which is only about 4% above the current price. The maximum realistic upside targets are about 20% above current levels.

Even if Tuesday's upside breakouts are confirmed by the weekly closes, caution is warranted. The reason is that we probably are dealing with the final leg of an intermediate-term advance, not a new multi-month advance. It's likely that whatever additional gains are going to be made over the next few months will be made within the next three weeks.

Silver is in a similar position to the gold mining sector.

On a different matter, we wonder who is buying Tesla shares and palladium at current prices. The palladium price gained about 8% on Tuesday and hit a new all-time high of around $2,500/oz. TSLA remains comfortably below its early-February intra-day spike high, but it gained 7% on Tuesday and is now just 3% below its all-time closing high.

The rallies in palladium and TSLA would be remarkable under normal circumstances, but they are made even more remarkable by what's happening in China. The dramatic slow-down in China's economy has caused vehicle sales to collapse in that country, which will have substantial adverse effects on the demand for palladium and the demand for Tesla cars.

Then again, this is typical of what happens in a bubble. Speculators are attracted by the upward momentum and for a while all other considerations are put aside. Something similar happened during the first half of 2008, when speculators pushed the oil price relentlessly upward in the face of evidence that the commercial/industrial demand for oil was falling.

Stock Selection Update #92 - 20th December 2019

In the 16th December Weekly Update we wrote that Fortuna Silver Mines (FSM) would be added to the TSI List as a trade with an expected duration of less than three months if it became available at US$3.35 within the ensuing two weeks. It was trading at US$3.62 at the time and has since pulled back to US$3.41.

US$3.41 is within 2% of our targeted buy price, which is close enough. After all, it's not like we are trying to scalp a profit of a few cents. The short-term upside potential is, we think, 30%-50%, so if the trade is going to work then paying an extra 2% to get in won't make a significant difference.

Therefore, we have added FSM to the TSI List as a short-term trade with an initial daily-closing stop at US$3.15.

FSM has a potential stock-specific rally catalyst in the form of the Lindero gold project going into production. However, this trade probably will sink or swim based on how the current price patterns for gold, silver and the gold-mining indices/ETFs are resolved. Upside breakouts or downward reversals should happen very soon, so the FSM trade should either start working or get stopped out within the next several days.

Alert #278, 2nd December 2019

In our discussion of the gold-mining sector in the latest Weekly Update, we wrote: "...a critical juncture has been reached. Within the next few days we should get confirmation that a multi-week top is in place or solid evidence that a rally to above this year's high has begun." That's still the case, but due to Monday's market action the idea that a critical juncture has been reached now applies more broadly. We explain why in point form below and have posted a chart associated with each of the following points at https://tsi-blog.com/2019/12/charts-of-interest-12/.

1) The US$ gold and silver prices ended last week at their 20-day MAs, which is where they remained at the end of Monday's US trading session. The 20-day MA should be viewed as initial resistance, meaning that daily closes above this MA would be preliminary evidence that a significant rally had begun.

2) GDX ended Monday's trading session at its 50-day MA. This is where all rebounds since the start of October have ended, so GDX is about to either reverse downward or signal that a more meaningful rebound is underway.

3) The Yen has rebounded to former lateral support (now resistance) and its 200-day MA. As discussed many times at TSI, the Yen tends to do well when the "risk off" theme gains the ascendancy.

The Yen's performance on Monday could be a minor bounce within a short-term downward trend or an upward trend reversal. It probably will turn out to be the latter IF the US stock market has commenced a significant correction.

4) The SPX has pulled back to its 20-day MA. This could be a minor pullback within a continuing short-term upward trend or the start of something more bearish. A solid daily close below the 20-day MA would be preliminary evidence of the latter.

5) The Russell2000 ETF (IWM) has pulled back to its breakout level. This is perfectly normal, but if it were to drop a little further (to below 157) it would mark the late-November upside breakout as false (a bearish signal).

6) The Dow Transportation Average (TRAN) peaked about a month ago and has just reversed course after making a lower high. It is at risk of downward acceleration.

7) The iShares 20+ Year Treasury ETF (TLT) dropped sharply on Monday after spending six trading days chopping around near its 50-day MA. This in itself is not surprising, but it was interesting that weakness in the T-Bond market coincided with weakness in the stock market. TLT is at risk of downward acceleration.

By the time we post this week's Interim Update we should have a better idea if short-term trend reversals have happened. The alternative is that we are dealing with minor reactions and that the short-term trends of the past three months (for example: up for the stock market, down for gold and the Yen) will soon reassert themselves.

Alert #277, 5th November 2019

Our conclusion after the positive gold-sector price action on Thursday 31st October was that the gold-mining indices/ETFs probably had commenced multi-month upward trends and that downward corrections probably would be limited by 20-day MAs. Consequently, we thought that pullbacks by the HUI and/or GDX to near their 20-day MAs should be viewed as short-term buying opportunities.

On Tuesday 5th November the HUI, the XAU and GDXJ all pulled back to slightly above their 20-day MAs. Furthermore, the HUI/gold ratio continues to trade in a bullish manner. However, the waters were muddied by GDX and the US$ gold price closing below their 20-day MAs.

At this stage we would give the benefit of the doubt to last week's positive signals, but for that to remain the case the gold-mining indices/ETFs will have to resume their rallies almost immediately. By the same token, if the HUI closes below 209 on Wednesday 6th November it will confirm GDX's break below the 20-day MA and suggest that last week's positive signals were false. This would open the door to the sort of correction-ending plunge that we were expecting prior to last week.

On a related matter, we won't know for sure until the next COT report is published at the end of this week, but the increase in futures open interest suggests that the total speculative net-long position in Comex gold futures made a new all-time high on Monday 4th November. As we keep saying, the huge speculative long position in gold causes the short-term downside risk in the gold price to be much greater than it otherwise would be given the fundamental backdrop.

Alert #276, 31st October 2019

Thursday's market action generated some persuasive evidence that the corrections in gold and gold mining are over. Of particular significance:

1) The US$ gold price closed above its short-term channel top and its 50-day MA.

2) Gold's upside breakout was confirmed by strength in the Yen (the major currency that is most strongly correlated with gold).

3) The HUI, GDX and GDXJ closed above their 50-day MAs.

4) The HUI/gold ratio continued to perform in a bullish manner.

If the corrections have ended then they have done so within the expected time-window, but at higher price levels than originally expected.

Our main concern is that there has not been a proper sentiment reset in the gold market. Specifically, we are concerned that the total speculative net-long position in Comex gold futures never dropped by more than around 20% from the all-time high reached in September and probably has returned to near its all-time high. The lack of a sentiment reset means that the short-term risk is uncomfortably high, even though a rally to new multi-year price highs appears to be underway.

The upward reversal in the gold-mining sector over the past 1.5 weeks is roughly in line with the 1980s Model we've been tracking. This model suggests that the gold-mining indices/ETFs will trend higher over the next three months and that downward corrections will be limited by 20-day MAs. Pullbacks by the HUI and/or GDX to near their 20-day MAs should be viewed as short-term buying opportunities.

Note that a pullback over the next two days would not change anything unless it was large enough to wipe out the gains of the past two days.

Alert #275, 20th August 2019

GDX, the HUI and the XAU closed below their respective 20-day moving averages on Monday. Along with last week's downside breakout by the HUI/gold ratio, this is evidence that a short-term top (a top that precedes a 1-3 month downward correction) is in place.

Note, though, that the gold-mining indices and ETFs generated similar warning signals when they closed below their 20-day MAs on 31st July, only to reverse course the next day and negate these signals. Therefore, don't assume that Monday's breaks below short-term moving-average support guarantee anything.

Generally speaking, looking at price charts is like looking in the rearview mirror. By looking behind it is possible to obtain clues as to what lies ahead, but these clues can be deceptive because conditions can change without warning. For example, the strongest rallies, including the rally in the gold-mining sector that began 2-3 months ago, often get underway when there are no hints of strength in the recent price action.

The probability that short-term tops are in place for the gold-mining indices and ETFs will increase if there isn't an upward reversal on Tuesday of sufficient strength to negate Monday's signal. However, in the grand scheme of things we don't think it will make a big difference whether Tuesday is or isn't a turnaround day for the gold sector. In our opinion, a sizable multi-month correction either is already underway or will begin within the next couple of weeks following moves to slightly above the early-August highs.

Alert #274, 5th August 2019

Last week's performance by the US stock market was characterized by negative reactions to news and it was the same story during the first trading day of this week. The catalyst for Monday's stock market sell-off was news that the Chinese government's retaliation to last Thursday's US government tariff decision would include Yuan devaluation. The virtual 6.95-7.00 ceiling for the USD/Yuan exchange rate has been broken.

Actually, it isn't reasonable to talk of Yuan devaluation, because that implies that China's government has begun to pressure the Yuan downward relative to the US$. In reality, what's now happening is that China's government has -- temporarily at least -- stopped trying to prop-up the Yuan. That is, what we are witnessing is the removal of the manipulation that was designed to hold the Yuan at an artificially strong level. Ironically, the removal of this manipulative force could prompt the US Treasury to cite China as a currency manipulator.

Monday's 3% plunge in the S&P500 Index (SPX) has injected significant value into the SPY September-2019 $270 put option that recently was added to the TSI Stocks List. At the mid-point of Monday's closing bid-offer spread the option was up by 250% since its addition to the List about 2.5 weeks ago.

As explained many times, the TSI Stocks List isn't a portfolio; it's a list of speculating/investing ideas. As such, it doesn't incorporate the money/risk management techniques that should be used when managing a portfolio. For example, it doesn't allow for averaging into and out of positions. A stock or a fund or an option or a warrant is either 100% in or 100% out of the List.

For those holding short-dated bearish speculations the most reasonable tactic would be to take profits on half of the position now with the aim of a) exiting the balance when the stock indices drop to lower levels late this month or early next month, and b) using part of the aforementioned profit to add a new short-dated bearish speculation following a significant multi-day market rebound. That's what we plan to do in our own account, except that we almost certainly will make a complete exit from our bearish position if the SPX plunges to the mid-2700s within the next two days (the index ended Monday's session at 2845). For TSI record purposes, however, we will assume that the total position is exited now and will look for an opportunity to add a new position within the next two weeks.

Stock Selection Update #91 - 23rd July 2019

After the close of trading on Monday, Golden Arrow Resources (GRG.V) announced that it has sold its 25% stake in the Pirquitas-Chinchillas silver-lead-zinc project in Argentina to its JV partner, SSR Mining (SSRM). The amount to be paid by SSR comprises:

- C$3M in cash payable upon closing.

- Cancellation of the outstanding principal and accrued interest on the US$10M non-revolving term loan provided by SSR to GRG.

- C$26M in shares of SSR Mining determined by the 20-day volume weighted average price of SSR's shares on the TSX ending on the last trading day prior to the closing date of the Transaction.

- Payment of GRG's portion of any cash calls made by the JV under the shareholders agreement until the closing of the transaction.

- Transfer to Golden Arrow for cancellation of the 4.3M GRG shares currently held by SSR Mining.

The value of the above is about C$44M.

Upon completion of the asset sale GRG will have no debt, about C$3M of cash, C$26M of SSR shares and some exploration-stage projects in Argentina and Chile.

We have never taken a close look at the portfolio of exploration-stage assets owned by GRG, because our sole interest was the 25% stake in Pirquitas-Chinchillas. We don't know how much these assets are worth, but the current market value would not be substantial. Our guess is no more than C$10M. However, the GRG team has had a lot of exploration success in the past and could repeat that success in the future via the discovery of another economic mineral deposit.

Cutting to the chase, this deal greatly de-risks GRG and underpins the stock price, but it also removes all leverage to the silver price and eliminates our reason for including the stock (both the short-term position added last week and the long-term position) in the TSI List. We therefore will be looking for a near-term opportunity to exit.

We don't know how the stock market will react to the deal, but, for very rough indicative purposes, we view the stock as a hold at C$0.25-C$0.30 and a sell at C$0.35-C$0.40 (GRG last traded at C$0.28). Unless advised otherwise, the stock (both positions) will be removed from the TSI List if it trades at C$0.40.

Stock Selection Update #90 - 11th June 2019

In the Weekly Update published on Sunday we noted that the gold market was short-term 'overbought' and at resistance, implying a high risk of some corrective activity over the coming 1-2 weeks. We also noted that the suspension of the tariff threat against Mexico over the weekend could be the catalyst for a significant pullback in the gold price. A gold-market correction that we suspect will last 1-2 weeks began on Monday.

At the end of last week the silver market was yet to show much strength and wasn't close to being 'overbought', but silver has followed gold into correction mode. As is the case with the leading market (gold), the lagging market (silver) probably will correct/consolidate for 1-2 weeks.

At this stage the evidence that the silver price has bottomed is tentative. Consequently, there is still a realistic chance of the silver price dropping to test major support at $13.50-$14.00 before a strong intermediate-term rally gets underway. However, the risk of that happening will all but disappear if the gold price breaks above long-term resistance in the $1350-$1380 range, which could happen as soon as next month and probably will happen within the next few months.

We are keen to add a silver-related trading position to the TSI Stocks List that takes into account the possibility that a substantial rally will begin soon as well as the possibility that the price will chop around for several more months and test major support prior to the start of a substantial rally. The SLV (Silver ETF) January-2021 $18.00 Call Option fits the bill. This option ended Monday's trading session at US$0.45-$0.49.

Long-dated options are often underpriced, but they are also often illiquid and therefore difficult to trade. In this case, however, the long-dated option of interest has reasonable liquidity.

We have added the above-mentioned SLV call option to the TSI List at the midpoint of Monday's closing bid-offer spread in anticipation of a substantial silver rally getting underway sometime within the next 12 months.

Stock Selection Update #89 - 16th May 2019

The price of platinum has pulled back from an early-April high of US$920 to $833, meaning that it has 'corrected' by almost 10% in a little more than a month. Over the same period the price of the Physical Platinum ETF (PPLT) has dropped from around US$86 to US$78.79. Both platinum and PPLT are now trading very close to their respective 200-day moving averages. This has created another good opportunity to buy platinum.

We have decided to add PPLT to the TSI Stocks List at Thursday's closing price of US$78.79. It is being added as a trading (as opposed to a long-term) position, although buyers should be prepared to hold for up to two years. We expect that within this period platinum will trade at least 50% above its current price.

Unlike a company that produces a useful commodity, the commodity itself can't go bankrupt. Consequently, there is a lot less risk involved in buying physical platinum than there is in buying the shares of any platinum mining company. For example, if you obtain exposure to platinum by purchasing the shares of Sibanye (SBGL) or Platinum Group Metals (PLG) then your maximum possible loss is 100%, regardless of how cheap the shares appear to be. However, if you buy physical platinum at today's depressed level then your maximum possible loss will be less than 20% (we think the worst-case realistic scenario is a test of last year's low, which implies downside risk of about 10%). To put it another way, platinum could get a bit cheaper but it ain't going to zero! As a result, averaging down can be a very low-risk strategy for patient buyers of physical metal.

We suspect that platinum's correction has almost run its course, but, further to the above comments, buyers near today's price in the $830s should be prepared to average down if given the opportunity to do so near long-term support in the $780s.

By the way, an equivalent fund to PPLT trades on the ASX under the symbol ETPMPT. This fund is a reasonable way to gain exposure to platinum, but it is very illiquid and therefore can be difficult to trade. It traded earlier today at A$114.78.

Stock Selection Update #88 - 24th April 2019

The gold mining sector continued its downward trend over the first two days of this week. As a result, the Junior Gold Miners ETF (GDXJ) has fallen for nine days in a row and is now at its lowest level of the year. To state the obvious: it is short-term oversold.

At least a 1-2 week rebound should begin soon, but the short-term risk/reward still doesn't look bullish. This is because the recent weakness of both the HUI/gold ratio and the GDX Advance-Decline Line suggests that the coming rebound will be followed by a drop to new lows for the year.

Due to the lack of evidence that a sustainable low is in place or close at hand it doesn't make sense to buy gold-mining stocks for short-term trades at this time, but many of these stocks are at very attractive levels for longer-term accumulation. A good example is Sabina Gold and Silver (SBB.TO). SBB is not the cheapest junior gold-mining stock out there, but due to its relatively low risk it has one of the best risk/reward ratios.

SBB has about 292M shares outstanding, which means that its market cap is a little less than C$300M at Tuesday's closing share price of C$1.01. The company's main asset is its 100% ownership of the fully-permitted Back River gold project in Nunavut, Canada. This project has a total gold resource of 7.2M ounces at an average grade of around 6-g/t.

According to the Feasibility Study completed in 2015, at a gold price of US$1250/oz the Back River project's post-tax NPV(5%) and IRR are C$606M and 28.3%, resp. Furthermore, the economics are robust down to a gold price of US$1000/oz.

The company also owns a silver royalty associated with Glencore's Hackett River zinc project. The royalty is being assigned very little value at the moment, but if Glencore were to move Hackett River into the construction phase then the royalty probably would be worth more than SBB's current market cap.

Importantly, SBB's C$41M budget for this year's work program (resource expansion and construction preparation at Back River) is fully funded by the company's existing cash. This should mean that there will be no need to tap the equity market for additional funds over the coming 6 months unless the company moves Back River into the construction phase, which it probably won't do unless there is a substantial improvement in the market for gold-mining stocks.

There is a decent chance that SBB will be taken over by a much larger mining company within the coming 12 months, but ideally a bid won't come until after the share price has rebounded to at least C$2.00.

SBB is already included in the "Trading Positions" section of the TSI List. We will look for an opportunity to exit this 'short-term' position within the next three months (the way things are going it most likely will be exited at a loss), because it has been held beyond its originally-planned 6-9 month duration. However, SBB has all the attributes to be a long-term position and will be immediately added to the "Gold and Silver" section of the List.

Taking into account SBB's chart and the current market environment for gold mining stocks there is a risk that SBB will trade as low as the mid-C$0.80s before bottoming out, but the intermediate-term upside potential is much greater than this downside risk. We added to our own SBB position in the low-C$1 area on Tuesday and plan to make another purchase if the stock drops into the C$0.80s.

Stock Selection Update #87 - 3rd April 2019

The purpose of this email is to highlight a speculative opportunity in a junior resource stock.

eCobalt Solutions (ECS.TO) owns the Feasibility-stage, environmentally-permitted Idaho Cobalt Project (ICP) located near Salmon in Idaho, United States. The ICP has the largest NI 43-101-compliant cobalt resource in the US, with 45.7 million pounds Co in measured and indicated resources. According to a Feasibility Study (FS) completed in 2017, the project could be developed into a mine with annual cobalt production of 2.4M pounds, an after-tax NPV(7.5%) of $136M and an IRR of 21.3% assuming a cobalt price of $26.65/pound. It is reasonable to assume that the project would NOT be economically viable at the current cobalt price of $14/pound, but the asset has significant value due to its US location and the potential for the cobalt price to move much higher over the next few years.

ECS peaked at C$2.10/share in early 2018, but it has been downhill ever since. The share price bottomed a few weeks ago at only C$0.25.

Prior to the start of trading on Monday 1st April it was announced that ECS had agreed to be taken over by the Australia-listed Jervois Mining (JRV.AX) in an all-stock transaction, with each ECS share to be exchanged for 1.65 JRV shares.

JRV's flagship asset is the Nico Young nickel-cobalt project in New South Wales, Australia. The company is close to finalising an economic study based on a JORC-compliant inferred mineral resource of 167.8 million tonnes at 0.59 per cent Ni and 0.06 per cent Co, meaning that the project economics have not yet been estimated. Also, the current resource indicates that Nico Young is a nickel project with a cobalt byproduct, not a cobalt project.

Based on JRV's price of A$0.23 at the time of the takeover announcement, the implied value of the offer for ECS was C$0.36/share. Since ECS had ended the preceding trading session at C$0.34, it was a very slim takeover premium.

The stock market was unimpressed and ECS shares closed down 1.5c at C$0.325 on Monday.

In Australian trading on Tuesday JRV shares rose to A$0.28, implying a value of C$0.44/share for ECS. We thought that this would lift ECS to at least C$0.40/share, but in Canadian trading on Tuesday the ECS price only rose to C$0.34.

JRV shares closed unchanged at A$0.28 in Australian trading on Wednesday, leaving the large discount in place.

Even at the current low price we wouldn't be interested in ECS in the absence of the JRV bid. There are better ways to gain exposure to cobalt, chief among them being Cobalt 27 (KBLT.V). However, the JRV bid makes ECS a good speculation at around C$0.34.

A likely reason for ECS's current large discount to the implied value of JRV's offer is that JRV is listed in Australia. JRV will seek a listing on the TSXV, but right now the shares only trade in Australia.

Alert #273, 19th March 2019

The Fed will make its next official statement regarding monetary policy on Wednesday afternoon (US EST). Everyone knows that there will be no change to targeted interest rates (the Fed Funds Rate target will remain 2.25%-2.50%) and almost everyone expects that the Fed will reiterate a 'dovish' message via terms such as "patient", "flexible", "muted inflation pressures" and "downside risks". Also, the general expectation is that the Fed's forecasts regarding economic growth, "inflation" and the Fed Funds Rate will be lowered.

What everyone expects is, by definition, already factored into market prices. Therefore, with the prices of stocks, industrial commodities and gold having moved upward over the past three months and the US$ having pulled back partly in anticipation of a more accommodative Fed, the stage has been set for post-Fed reactions against the recent price trends.

At greatest risk of near-term price weakness are the stock and oil markets. These markets are still 'joined at the hip', meaning that a sharp post-Fed downward move in one should be accompanied by a similar move in the other.

There has been no bearish divergence between stock-market breadth and the senior US stock indices in the recent past, so we continue to expect that the S&P500 Index (SPX) will make a new high for the year during the second quarter. However, a sharp intervening correction is likely and this week's Fed news could be the catalyst.

Regarding the TSI Stocks List, we aren't making any changes to reflect our concern about near-term downside risk. Instead, our current plan is to wait for a better opportunity to add one or more longer-term (4-12 month) bearish speculations. For our own money management, though, we bought SPY April-2019 $280 put options on Tuesday and are holding GDX April-2019 $22 put options that were purchased a few weeks ago. These positions are big enough to 'cushion the blow' if prices drop significantly over the next couple of weeks, but small enough to be comfortably written off if our concerns prove to be unfounded.

Alert #272, 5th February 2019

In the latest Weekly Update, we wrote:

"In each of the past two weeks the US stock market pulled back during the first 1-2 days of the week and then rallied into the week's end. We suspect that the opposite pattern (additional upside early in the week and then a downward reversal) will mark a top that holds for 1-2 months or longer."

We got some additional upside early in the week. What's required now (within the next couple of days) is a downward reversal to mark the top of the INITIAL rally from the December low. Our guess is that since the initial rally has taken the SPX to near its 50-week MA, almost all of the upside potential has been exhausted and the next rally will do little more than test the February high. Between the two rallies we expect a multi-week pullback that retraces at least half of the gain from the December low.

Short-term traders could attempt to profit from the aforementioned multi-week pullback via leveraged inverse index funds (using tight stops) or put options expiring in March or April, whereas traders with longer timeframes should wait for a multi-month topping pattern to develop before entering bearish speculations.

The TSI List already has short-term SPY put options, but they are now too far out of the money ($245 exercise price versus $272 current SPY price) to profit in a big way from the sort of decline we expect over the next 3-6 weeks. We therefore have added a new SPY put-option position with a higher strike price. Specifically, we have added the SPY $260 put that expires on 15th March 2019, using Monday's closing price of US$1.79 as the entry point for record purposes.

Alert #271, 19th December 2018

GDX has moved up to test intermediate-term resistance at $21.00 and the HUI is testing equivalent resistance at 160. The most likely outcome is that this resistance will be overcome within the next week or so, leading to additional upside of 10%-15% prior to a short-term top. Also, once these resistance levels are breached and the tax-loss selling period comes to an end (27th December), the speculative end of the gold-mining sector (explorers and small-scale producers) should join the rally. Most of these stocks have been left out to date.

Due to having substantial exposure to the gold-mining sector in the TSI List and in our own accounts, we are well covered against the scenario outlined above. Our concern is that while an extension of the short-term rally (with or without some intervening consolidation) is the most probable outcome, the fact that the gold-mining indices and ETFs have moved up to test important resistance levels ahead of the 19th December Fed statement creates the risk of a post-Fed downward reversal. Therefore, we think it makes sense to do some hedging.

While we sometimes mention hedging tactics in the TSI commentaries, we don't recall ever including a pure insurance position in the TSI List. If so, this is a first. We are adding the GDX March-2019 $19.00 put option to the List solely for hedging/insurance purposes. It ended Tuesday's session at US$0.34-$0.39 with a last trade at $0.37, so unless something dramatic happens at the start of trading on Wednesday our opening price will be $0.37.

On a related matter, there has been some talk of the Fed not hiking its targeted interest rates this week. This is unrealistic, especially in light of Trump's comments over the past few days (refer to the article at https://www.bbc.com/news/business-46610412 for details). Trump has made it virtually impossible for the Fed NOT to hike, because now if the Fed doesn't hike it will appear to have given-in to political pressure.

A December rate hike remains a near certainty, with the only questions revolving around the changes that will be made to the official statement wording and what Powell will say at his post-meeting press conference. We think that the Fed will point to future rate hikes being "data dependent", which would be code for "there won't be any more rate hikes if the economic data turn sour and/or the stock market fails to stabilise".

Alert #270, 28th November 2018

As mentioned previously, we like to take an 'if/then' approach to the financial markets. For example, in the latest Weekly Update we wrote: "If the [US stock] market plunges to new lows during the first two days of this week it will present an opportunity to take profits on bearish speculations. Alternatively, if the market rebounds over the next few days it will present an opportunity to add bearish speculations in anticipation of a plunge to new lows within the ensuing fortnight." We got the rebound scenario.

There was a routine bounce during the first two days of this week and then a more substantial bounce on Wednesday 28th November. Wednesday's strength was a reaction to Fed Chair Powell saying that the Fed Funds Rate (FFR) was close to neutral, implying that the Fed would hike the FFR next year by less than previously expected.

Although the Fed's interest-rate moves garner most of the headlines, it's the change in its balance sheet that determines the extent to which the Fed is tightening or loosening. If the Fed continues to unwind its QE at the current pace then monetary conditions will become increasingly problematic for the stock market UNLESS the commercial banks ramp-up their collective rate of money creation (the commercial banks create money out of nothing when they make loans) by enough to offset the Fed's actions.

The Fed remains committed to its balance-sheet reduction plan, so no significant change to the monetary backdrop was signaled by Powell on Wednesday. Also, there was nothing in the market action to suggest that a change in trading tactics is warranted. Of particular note, Wednesday's gains in the senior stock indices were not confirmed by measures of market breadth, and the SPX's gain of 62 points (2.3%) to 2744 left it below its 200-day MA (2762) and its 50-day MA (2782). The 50-day MA probably defines the near-term upside potential, but the critical 'line in the sand' is the 7th November high of 2815.

Our trading plan is to now buy some more SPY put options and/or take profits on the SPY call options we mentioned purchasing in an email alert last week (TSI Market Alert #269). For the TSI Stocks List, we will add a position in the SPY January-2019 $260 put options. These options ended Wednesday's session at US$2.76-$2.79, so for record purposes we will use $2.78 as the starting price.

Remember that there will be no Interim Update this week and that the Weekly Update will be published about 2 days earlier than usual.

Alert #269, 21st November 2018

The US stock market has been even weaker than we expected.

In last week's Interim Update we wrote that a bounce to a lower high (below the 7th November high of 2815 for the SPX) was likely and that "strength in the stock market over the next several days should be viewed as an opportunity to establish new or add to existing bearish positions..." Then, in the Weekly Update we wrote that this week was the most likely time for the current bounce to run out of steam.

We guessed that the SPX would return to the vicinity of its 200-day MA (about 25 points above last week's close) before resuming its intermediate-term decline, but the bounce that got underway last week ran out of steam as soon as the new trading week kicked off.

It's possible that the SPX will hold its late-October low for now and soon commence another multi-day bounce, but there's also a risk that it will break below its late-October low and accelerate downward over the coming 1-2 weeks. Either way, there is no evidence that a sustainable low is close at hand. On the contrary, the VIX has only risen to the low-20s and the NYSE Advance-Decline Line is positioned to confirm downside breakouts in the senior stock indices. Also, the NASDAQ has already taken out its 29th October low.

Since near the beginning of the stock market's decline in early-October, things generally have happened too quickly to be reflected by changes to the composition of the TSI Stocks List. However, we have endeavoured to provide practical ideas on how to deal with the volatile market by mentioning some of the trading that was being done in our own accounts. For example:

In the email sent at around this time last week, we wrote: "...if there is at least a modicum of weakness in the US stock market today (Wednesday) we will take profits on HALF of our SPY put options with the aim of buying more puts during a period of stock market strength later this month." In last week's Interim Update we confirmed that we had taken profits on half of our SPY puts on Wednesday 14th November. In the Weekly Update published on Sunday 18th November we then advised: "For our own account, on Friday 16th November some SPY January-2019 $260 put options were purchased at $3.40 and our plan is to buy more of these puts (at a lower price) this week if the SPX rises to the vicinity of its 200-day MA."

We didn't get the rise to the 200-day MA. Instead, the US stock market traded heavily from the open of Monday's session to the close of Tuesday's session.

There was sufficient weakness on Tuesday to again prompt us to take profits on HALF of our SPY put options. In effect, we are trading around a core bearish position -- scaling out on the plunges and scaling in on the rebounds. On Tuesday we also bought some well-out-of-the-money SPY call options to protect the profits on the balance of our SPY put options. These call options will be exited if there's a strong bounce over the next few days.

We realise that options trading isn't of interest to many of our readers, but hopefully the information on what we are doing still has some value.

We expect that soon after the SPX takes out its 29th October low, the fundamental backdrop will begin to turn positive for gold. Therefore, a good set-up for a gold rally could emerge within the next month. This will be discussed in the coming Weekly Update.

Alert #268, 14th November 2018

Here are brief comments on short-term positioning in two of the markets we track. More detailed comments on these markets will be included in tomorrow's Interim Update.

First, on Tuesday 13th November the oil market extended its losing streak to (a record?) 12 days and in the process hit the $55 target we've mentioned numerous times over the past two months. This prompted us to exit the final third of our USO January-2019 put options, so in terms of short-term positioning we are no longer leaning towards the bearish side of this market. In fact, although there's a high probability of the oil price dropping a bit further before it reaches a sustainable low, we are now looking for opportunities to lean the other way. In this regard, the Oil Services ETF (OIH) is very interesting. This ETF has just taken out its early-2016 bottom and is at its lowest level since early-2009.

We are going to average into an OIH position over the weeks ahead in anticipation of a multi-month rebound.

Second, if there is at least a modicum of weakness in the US stock market today (Wednesday) we will take profits on HALF of our SPY put options with the aim of buying more puts during a period of stock market strength later this month. We guess that the predictable rebound that got underway on 29th October is not yet complete, but in case we are wrong we will retain half of our SPY puts.

Stock Selection Update #86 - 7th November 2018

The overall result of the US Midterm Election was in line with the polls, in that the Republican Party has lost control of the House and retained control of the Senate. Because this is the outcome that was generally expected, the impact on the financial markets should be relatively small. The stock market rebound that got underway (as expected) early last week probably isn't over.

In any case, the purpose of this email is not to discuss the US elections; it's to note that we are removing the bearish oil speculation (USO January-2019 $13 put options) from the TSI List. The oil price will have to drop another 10% to reach our short-term downside target of $55, but the risk/reward is no longer skewed in the bears' favour.

Based on the current option price of US$0.62 and the price of $0.39 at which the position was added to the List in late-August, the profit on the trade is only about 60%. However, anyone who averaged into a position could have fared much better. For example, in our own account the final purchase of these options was made at $0.12 and the average cost was around $0.20.

For your information, one-third of the USO put-option position in our own account was exited late last week and another third was exited on Tuesday of this week. Our current plan is sell the balance if the oil price drops to around $58.

Alert #267, 25th October 2018

Thursday's bounce in the US stock market didn't change anything. It's possible that a multi-week low was put in place on Wednesday, but the continuing absence of fear suggests that Wednesday's low will be tested or breached within the next few weeks.

As forewarned in the latest Interim Update, we exited the balance of our SPY put options near the start of trading on Thursday 25th October. This action was taken because Wednesday's plunge in the SPX to around 2650 had brought the near-term upside potential into line with the near-term downside risk. We have no specific view of what the senior US stock indices will do over the next several days, but a substantial extension of Thursday's bounce probably would cause us to establish a new SPY put-option position. Much will depend on this week's and this month's closing prices.

In any case, the main reason for this email is the performance of the gold-mining sector on Thursday 25th October.

Thursday's weakness in the gold-mining sector was sufficient to break the associated indices and ETFs below significant support levels. The downside breakout in GDX was marginal, but the downside breakouts in the HUI and the XAU were decisive. The price action suggests that the gold sector's counter-trend rebound ended slightly lower and a little sooner than anticipated.

We are well aware that Thursday's sell-off in the gold-mining sector was partly a reaction to a terrible quarterly earnings report from Goldcorp (GG), but how a market reacts to news is often informative. In an upward trend, bad news is quickly shaken off. It doesn't cause the market-wide breaching of important support levels.

As advised in the Market Alert Email sent earlier this week, we exited all of our gold-mining call options and bought some GDX put options for hedging purposes during the first hour of trading on Tuesday 23rd October. At this stage the GDX put-option position is only one-quarter the size that it would have to be for us to feel sufficiently hedged against short-term downside risk in the mining stocks, but we suspect that another opportunity to hedge will arrive within the coming two weeks. One reason is that the Dollar Index has done what we expected, which is rise to test its August high. This should pave the way for a US$ pullback to start within the next few days, helping to boost gold and the associated mining stocks.

With regard to the TSI Stocks List, we are removing the short-term trading positions in Gold Fields (GFI) and Osisko Gold Royalties (OR). These will go into the record books as a profit of 11.2% (GFI) and a loss of 16% (OR).

Alert #266, 23rd October 2018

In the latest Weekly Update we wrote that we expected a decline to below the 11th October low, either this week or after 1-2 weeks of additional rebounding/consolidation. On Tuesday 23rd October the SPX traded well below its 11th October low before recouping almost three-quarters of its loss and ending the day above the 11th October low. Also, there was a bullish non-confirmation at Tuesday's intra-day low due to the NDX holding above its 11th October low.

Based solely on the price action, the sell-off during the early-going on Tuesday 23rd October could have been a successful test of the 11th October low and marked the end of the short-term downward trend that got underway in September.

Arguing against the possibility that a correction low has just been put in place is the absence of fear. For example, the VIX only got as high as 24.7 on Tuesday and ended the day at a measly 20.7. Also, there was only a half-hearted flight to safety evident in the bond and gold markets. There doesn't have to be obvious evidence of fear prior to a short-term bottom, but without such evidence the risk of new multi-month lows will be high.

So, there are bullish signs in the price action and a sentiment backdrop that suggests the potential for significant additional weakness. A mixed picture.

Regardless of what we think the future holds in store, we always take profits on bearish speculations in response to the sort of plunge that happened early in Tuesday's US trading session. In this case, we exited about two-thirds of our SPY December-2018 put options during the first hour of trading on Tuesday. We will exit the rest of our puts if the market plunges anew on Wednesday or Thursday and we probably will buy more short-term puts if the market rebounds over the coming 1-2 weeks.

At around the same time that we were selling most of our SPY put options we also sold all of our gold-mining call options and for insurance purposes bought an initial position (intended to be one-quarter of a full position) in GDX January-2019 $20 put options. We are hoping for some additional strength in GDX over the next two weeks to enable the balance of the planned insurance position to be obtained at a relatively low cost. We retained a position in SLV call options. It's hard to imagine that silver won't go along for the ride if there is additional strength in gold and gold-mining stocks over the next couple of weeks.

As far as the TSI List is concerned, the only change we are going to make is to remove the Gold Fields (GFI) January-2019 $3.00 call options that were added in early-September at $0.10. These options ended Tuesday's session at $0.28-$0.33 with a last trade at $0.30, so we'll use $0.30 as the closing price for this trade. The short-term trading position in GFI shares will remain for now, but will be exited if the stock price moves up to $3.40 within the coming three weeks.

Naturally, we'll have more to say in the Interim Update later this week.

Alert #265, 16th May 2018

This is a very brief note in response to gold's performance on Tuesday 15th May.

On Tuesday the US$ gold price broke well below its 200-day MA and ended the day at about $1290, a new low for the year, thus negating the short-term bullish signal that was generated about two weeks ago. Is this a big deal?

Not necessarily. The break below the 200-day MA is a divergence from the 1985-1987 Model that we have been tracking, but gold's performance since the 8-year cycle low in December-2016 has been more volatile than its performance following the February-1985 8-year cycle low and this time around the 200-day MA has tended NOT to act as support. In fact, given that the fundamental backdrop was (and still is) unequivocally gold-bearish we were a little surprised that the 200-day MA held during its multiple tests early this month.

The gold price must end this week below $1309 to confirm Tuesday's breakdown. Assuming it does so and taking into account what happened last year following breaks below the 200-day MA, the price likely will bottom at $1250-$1280 next week.

Stock Selection Update #85 - 8th May 2018

There was important news after the close of trading on Monday 7th May that affects two members of the TSI Stocks List. The news is that Lundin Mining (LUN.TO) has joined with TSI stock Euro Sun Mining (ESM.TO) to bid for TSI stock Nevsun Resources (NSU). The bid values NSU at C$5.00/share.

The bid is structured as follows:

1) LUN will pay C$2.00/share in cash plus C$2.00/share in stock for NSU's stake in the Timok project in Serbia. NSU owns 100% of the Timok Upper Zone (TUZ) and will end up with 46% of the Timok Lower Zone (TLZ) after JV partner Freeport McMoran (FCX) completes its earn-in.

2) ESM will pay C$1.00/share in stock for NSU's 60% stake in the Bisha project and NSU's cash.

NSU shares ended Monday's session at C$3.82, so the bid constitutes a 30% premium to the current market price. Although this is a decent premium, the bid has been rejected by NSU's management.

The rejection of the bid is reasonable, because a good argument can be made that the stock is worth a lot more than the offered price. For example, if we assume that at this stage of its development the TUZ is worth 50% of its US$1311M NPV, that NSU's TLZ stake is worth US$200M (it's probably worth a lot more) and that Bisha is worth about 1-times annual revenue, then adding US$188M of working capital gives us a back-of-the-envelope value estimate of US$1350M for the entire company. This equates to about US$4.50/share (C$5.80/share), based on fairly conservative assumptions.

In our opinion the bid has almost no chance of success at its current level, but it means that NSU is now in play. There's a strong possibility of a higher bid, either from the current bidders or from FCX (it would make a lot of sense for FCX to consolidate ownership of Timok, especially given the problems it is encountering at its Grasberg mine in Indonesia).

In the unlikely event that the current bid achieves success it would be an excellent deal for ESM (taking into account the cash, we reckon that ESM would be buying Bisha for about half of what it is worth) and an OK deal for NSU shareholders. However, a better deal for NSU shareholders is potentially on the cards.

Our suggestion is that if you own NSU shares, continue to hold in anticipation of a better offer.

Alert #264, 24th April 2018

Depending on how we draw the lines, the Dollar Index (DX) either achieved a marginal upside breakout on Monday 23rd April or ended Monday's session at the top of its 3-month trading range. Either way, it has just risen on 5 consecutive trading days and is a little stretched to the upside. We will wait to see what happens over the next two trading days before commenting further.

The main purpose of this email is to update our thoughts on silver and the Australian dollar (A$).

In the TSI commentary posted on Sunday 22nd April we wrote that with silver-market sentiment being neutral and gold having just generated a minor bearish signal by closing below its 20-day MA, a good setup for a large silver rally was not yet in place. We also wrote that it's important to manage upside risk as well as downside risk, and that if the silver price were to pull back to around $16.90 during the ensuing three days it could make sense to obtain some silver exposure in preparation for either a short-lived $1-$2 surge or the much larger rally that we expect to get underway within the next two months.

As it turned out, the silver price dropped all the way back to around $16.60 on Monday. This has negated last week's upside breakout, but from our perspective that doesn't matter because we didn't view the breakout as significant to begin with.

We still think it makes sense to buy some long-side trading exposure to silver, with the aim of either adding to the position if the price trends downward to a May-June low or taking a quick profit if there's a $1-$2 surge to a May high. In this vein we will add the SLV January-2019 $18 call option to the TSI List if it trades at US$0.40 within the coming two weeks. Note that Monday's closing bid-offer spread was $0.42-$0.47.

Moving on, the A$ has fallen sharply over the past three trading days and made a new low for the year on Monday 23rd April. However, it ended Monday's session at short-term channel and intermediate-term trend-line support, so this is a reasonable place to buy for a 3-6 month trade. Therefore, we have added the FXA (CurrencyShares Australian Dollar) September-2018 $80 call option to the TSI List, using the mid-point of Monday's closing bid-offer spread (0.35-0.45) as our entry point.

The A$ may not have bottomed, but we suspect that it is close to a bottom in terms of both price and time.

That's all for now.

Alert #263, 9th April 2018

In the latest Weekly Update, we wrote: "With regard to the management of our own account, advantage was taken of the sharp decline that occurred last Monday [2nd April] to exit the remaining short-term bearish speculations (QQQ put options with an expiry date of 20th April). We then placed an order to buy QQQ put options with a June expiry date, but the order wasn't filled because the rebound from Monday's low wasn't quite strong enough. We are therefore 'on the sidelines' awaiting a better opportunity."

With regard to QQQ put options we are still 'on the sidelines', because the 9th April rebound again wasn't strong enough to enable our order to be filled. However, we did take a new position in Tesla (TSLA) put options on Monday (we bought some TSLA June-2018 $200 puts) in response to the stock's early-morning (in the US) rise to near the top of its former major support range of $300-$310. This former support is now resistance and the rebound from the recent low in the $240s to Monday's intra-day high of $309.50 could turn out to be a successful test of the late-March breakdown. For more information, refer to the chart included in a post at the TSI Blog earlier today.

We aren't going to add a new TSLA bearish speculation to the TSI List at this time, the main reason being that our current speculation is too short-term. We could be out of the position as soon as this week and very likely will exit within the next four weeks. We are mentioning it, though, because we know (from emails) that some TSI readers are involved on the short side -- having retained part of a bearish position following the stock's recent crash or having initiated a new bearish position after the stock's rebound to the $290s -- based on the analysis presented at TSI.

Here's our tentative trading plan:

  - Take a quick loss if the stock now achieves consecutive CLOSES above $310.

  - Take a partial or full profit if the stock price soon drops back to the $250s. Note that whether we make a partial or full exit will depend on the overall market situation at the time.

  - If only a partial profit is taken following a drop back to the $250s, take profits on the balance if the stock price extends its plunge to the low-$200s.

It would be reasonable for short-term traders to enter new bearish positions while the stock price remains in the $290-$310 range, but it will be important to keep these positions on a tight leash. At some point the many remaining bulls on this stock will make a stand, possibly on the back of outrageously optimistic prognostications from the company's charismatic CEO.

Alert #262, 28th March 2018

The SPX ended Wednesday's session in essentially the same position that it ended last week: precariously poised within a few points of the widely-watched 200-day MA. Perhaps it will again rebound from this obvious support level, but the risk of a 'whoosh' to the downside is high. As mentioned in the Interim Update posted yesterday, if this happens it should be viewed as an opportunity to take profits on short-term bearish speculations, not as a reason to lean further to the bearish side.

If the SPX's 200-day MA (2588) is crossed then the next level of support will be the February low (2530). While a test of the February low could be successful, a short-lived spike to well below this level would have a better chance of creating a multi-month bottom.

Note that 'market internals' are holding up quite well and at the moment we have early signs of a bullish divergence between the internals and the senior indices. We'll review this potentially-bullish development in the Weekly Update.

Anyway, the main purpose of this email is to update our Tesla (TSLA) put option trade.

On Wednesday 28th March TSLA immediately built on Tuesday's downside breakout. As a result, our April $250 put options opened at $12.00 and never traded below $10.80. For TSI record purposes we will therefore use $10.80 as the exit price for the first half of the position (not the $7.20 price mentioned in yesterday's Interim Update). The second half of the position hit our designated sell price of $14.50, so the TSLA puts have been removed from the TSI List at an average of $12.65. The result of the trade was a profit of about 370%.

If you still hold any of these TSLA puts you should look for an opportunity to exit over the next two trading days (Thursday and Monday). They traded as high as $19 on Wednesday, but they are still slightly out of the money (the stock closed at $258) so they will be worthless in about three weeks unless the stock continues its decline. The stock may well continue its decline over the next couple of weeks, but there's a significant risk that it will rebound or at least stabilise for a while.

Regardless of what happens over the days/weeks immediately ahead, Tesla's road to bankruptcy likely will be a long and winding one. New opportunities to speculate bearishly on this stock should therefore arise from time to time.

Going into Wednesday's trading session our own account contained the aforementioned TSLA puts and some QQQ April puts. The TSLA puts were exited in full at an average of about $13, but we are still holding all of the QQQ puts. Our plan is to exit the QQQ puts if there is a sharp decline on Thursday 29th March or next Monday.

As mentioned in the latest Weekly Update, the daily-closing prices in some markets on Thursday 29th March (the last trading day of the month and the quarter) could have long-term importance.

Alert #261, 27th February 2018

The S&P500 Index (SPX) broke above minor resistance at 2750 on Monday and made a marginal new rebound high on Tuesday before reversing course. On Tuesday it closed below 2750, suggesting that Monday's breakout was false. The NASDAQ100 Index (NDX) has been much stronger than the SPX and actually managed to test its January peak (its all-time high) on Tuesday before reversing course.

In the latest Weekly Update we wrote that it would be reasonable for traders to use a daily SPX close above 2750 as a 'stop' for short-term bearish positions. Due to the price action of the past two days, a more appropriate stop is now apparent.

Due to what happened over the past two days we think it makes sense to use a daily SPX close above 2781 (slightly above Monday's close) as a stop for short-term bearish positions. In fact, although we rarely apply money management techniques to positions in the TSI Stocks List, the QID trading position will be automatically removed from the List if the SPX closes above 2781.

Traders who were stopped out on Monday could re-enter now and risk only a few percent by applying the above-mentioned stop.

Lastly, keep in mind that we are probably dealing with a short-term correction that will run its course before the end of March. There is still a decent chance that the early-February spike low will be tested as part of a bottoming process, but the probability is very low that the decline from the January peak will turn out to be either the first leg of a bear market or the initial part of a crash.

The Dollar Index (DX), gold bullion and the gold-mining indices are trading in line with our expectations. Additional upside in the DX and additional downside in gold and the associated mining stocks is likely over the next couple of weeks.

Stock Selection Update #84 - 19th February 2018

This email covers changes to the TSI Stocks List and the Small Stocks Watch List.

1) Changes to the TSI Stocks List

In the 1st January 2018 Weekly Update, we wrote:

"To make the TSI Stocks List less unwieldy and to thus ensure that we are able to provide adequate coverage of each listed stock, we are going to impose a limit on the number of stocks in the List.

...We think that 15 is a reasonable maximum for the TSI List.

It will be a rigid limit, meaning that if there are already 15 stocks in the List then a new stock cannot be added unless an existing stock is removed. As well as making the List less cumbersome from a commentary-writing perspective, this will impose some additional discipline by forcing us to regularly review the risk/reward of all existing stocks.

We will, however, retain some flexibility in that the limit will only apply to long-term positions (LIST #1 and LIST #2 on the stock selections page). In other words, warrants, options and shorter-term trading positions won't be counted.

There are presently 19 long-term positions in the TSI List, so we will have to remove at least four stocks."

We have since removed two stocks and added one stock, so there are presently 18 long-term positions in the List. A net deletion of three stocks must therefore happen.

The process of reducing the size of the TSI Stocks List continues today, with the removal of two stocks that we've been following since 2006-2007. The two stocks are Evolution Mining (EVN.AX) and Energy Fuels (EFR.TO, UUUU).

When a stock has been in the TSI List for a very long time, as is the case with both of today's removals, we will have highlighted a large number of buying and selling opportunities at different prices over the years. The difference between the prices at which the stock entered and exited the List therefore may not be representative of performance. However, since the TSI Stocks List is not designed to be and is not managed like a portfolio, the difference between the original and final prices is all we have to go on when recording performance.

For EVN the result was a gain of about 300% and for EFR the result was a loss of about 98%.

We have selected EVN, a mid-tier gold producer, for removal because it is now a relatively conservative stock that does not offer substantial leverage to changes in the gold price. This should cause it to be relatively strong during periods of lethargy or weakness in the bullion market and relatively weak during strong intermediate-term rallies in the bullion market. We are expecting gold and gold-mining weakness over the coming month, so in the short-term we expect EVN to hold up relatively well. However, it is likely to underperform once the next tradable rally gets underway.

For your information, our own account will continue to have exposure to EVN. We have reduced the size of the position from large to medium, but with the yield on cash deposits being almost non-existent we like the fact that EVN offers a significant dividend yield, and with gold not being in a bull market we don't mind EVN's lack of gold-price leverage.

We have selected EFR for removal because it is a leveraged play on a commodity that has a relatively low probability of commencing a substantial and sustainable advance in the foreseeable future. The commodity is uranium.

We expect to return EFR to the TSI List as a short-term trade later this year to take advantage of the next bout of short-lived enthusiasm for uranium, but due to the self-imposed new restriction on the TSI List size we would prefer that long-term positions were focused on commodities with superior long-term upside potential. The "EV metals" are the commodities with the most bullish long-term risk/reward ratios.

As is the case with EVN, our own account will retain some exposure to EFR. Specifically, we have a small-to-medium position in EFR purchased at an average cost of C$2.40 (about 20% above the current market price) that we have no immediate plan to sell. This position is being retained because it provides our only exposure to uranium and because holding the shares forces us to follow the company and the uranium market more closely than we otherwise would.

2) Change to the TSI Small Stocks Watch List (SSWL)

Emmerson Resources (ERM.AX), a microcap gold explorer, was added to the SSWL in 2016 due to our expectation that the extremely high-grade gold intercepts achieved in the drilling of the Tennant Creek Mineral Field (TCMF) would prompt Evolution Mining (EVN.AX), ERM's JV partner, to make a takeover bid.

It seems that a takeover of ERM by EVN is not going to happen. Instead, ERM and EVN have come to a new arrangement that involves EVN taking 100% ownership of a small part of the TCMF and ERM taking 100% ownership of the rest. This appears to be a reasonable deal for ERM and the stock continues to have large exploration-related upside potential, but the same could be said for many other junior mining stocks. From our perspective, the important differentiator for ERM was the support it was getting from a mid-tier producer. Due to the removal of this support, we have removed ERM from the SSWL.

ERM was priced at A$0.05 when it was added to the SSWL and subsequently traded as high as A$0.19. It is currently trading at A$0.08.

That's it for now.

Stock Selection Update #83 - 6th February 2018

There was a spectacular volatility spike in the US stock market during the first two trading days of this week. We will be discussing the implications in the Interim Update, but suffice to say right now that a) the correction probably will continue for a few more weeks, with a rebound followed by a decline to a new low, and b) the bulk of the correction's price decline was probably out of the way when the March S&P500 futures contract traded at 2529 prior to the opening of the stock market on 6th February.

The reason for this email isn't to discuss the general stock market drama, but to confirm the addition of Cobalt 27 Capital Corp. (TSXV: KBLT) to the TSI Stocks List at C$11.00. This change to the TSI List is further to the cobalt discussion included in the 15th January Weekly Update. For ease of reference, here is the relevant bit:

"Investors can participate in the cobalt bull market without taking exploration or country risk (almost all of the world's high-margin cobalt deposits are in the DRC) by purchasing the shares of Cobalt 27 Capital Corp. (TSXV: KBLT). KBLT currently owns 2,983 tonnes of physical cobalt stored in LME warehouses and some royalties on early-stage cobalt projects. It also plans to do cobalt streaming deals at mines where the cobalt byproduct is small relative to the mine's total revenue.

KBLT has only existed for about 7 months. It has 34M shares outstanding and ended Friday's session at C$12.45/share.

Based solely on its cash and physical cobalt, that is, assigning no value to its royalties, we estimate that KBLT's current net asset value (NAV) is about C$9.00/share. This means that KBLT is trading at about a 38% premium to NAV.

Taking into account the paucity of choices when it comes to cobalt-focused investments and KBLT's plan to do streaming deals, this is not an unreasonable premium. It could therefore make sense to take an initial position near the current price, although we are hoping that a better buying opportunity will arrive within the next couple of months.

A much better buying opportunity is not likely, because a stock such as this usually will trade at a significant premium to NAV and there probably won't be a large decline in the cobalt price. Consequently, we think that the current NAV defines the downside risk.

KBLT will be added to the TSI Stocks List if it trades at C$11.00."

Since we wrote the above the cobalt price has moved up from around US$75,000/t to around $80,000/t, so KBLT's NAV has risen a little. At the same time, the mini panic in the stock market caused KBLT to trade as low as C$10.91 on Tuesday 6th February. This created the opportunity we were hoping for.

Stock Selection Update #82 - 20th November 2017

We are adding Resolute Mining (ASX: RSG) to the TSI Stocks List as a short-to-intermediate-term trading position, although the stock has the right attributes to be a longer-term holding.

RSG's most important assets are the Syama gold mine in Mali (West Africa) and the Ravenswood gold mine in Queensland, Australia. Syama is currently producing gold at the rate of 220K-ounces/year and Ravenswood is currently producing gold at the rate of 80K-ounces/year, but in-progress development plans are expected to increase the production rates to 240K-ounces/year and 120K-ounces/year, respectively. RSG also owns the Bibiani gold project in Ghana. It is expected that Bibiani will be brought into production within the next year or so and will produce gold at the rate of 100K ounces/year over an initial 5-year life.

With 741M shares outstanding and estimated net cash of A$187M, at the current share price (A$1.025) RSG has an enterprise value of A$573M (US$435M). This is low for a profitable gold miner with 300K-ounces/year of current production (at an AISC of US$960/oz), a 12-13 year mine life at its two most important assets, and built-in growth to a production rate of 460K-ounces/year over the coming two years. The current valuation suggests the potential for at least a 50% increase in the stock price with no increase in the gold price, although it's likely that an upward-trending gold price will be required to push the share price up to the A$1.50-$2.00 range that we have in mind as a target for this trade.

There are two other points worth mentioning, the first being that RSG has a policy to pay 2% of its annual gold production as a dividend that shareholders can choose to receive in cash or gold. At the current production rate and stock price this amounts to a dividend yield of 2%, which is a reasonable yield for a mid-tier gold miner in today's market.

The second point worth mentioning is that RSG has hedged (forward sold) 96K ounces of gold at US$1330/oz. This was a sensible move by the management. It provides some downside protection as the company invests heavily in its expansion projects but maintains plenty of gold-price leverage (the hedging covers about 25% of production through to December-2018).

It's possible that the recent gold rebound will fizzle out within the coming two weeks and give way to a sharp decline into early next year. It's also possible that the rebound will gather steam and extend into early next year. Both of these short-term possibilities can be accounted for by purchasing half of an RSG position now (in the low-A$1.00 area) with the aim of purchasing the other half if the more bearish of the aforementioned short-term scenarios plays out.

Stock Selection Update #81 - 2nd October 2017

We previously wrote that we would remove the Nevsun Resources (NSU) trading position from the TSI List if the stock price rebounded to US$2.40, but this is no longer the case. Instead, we'll make a decision on this position based on the Timok project PEA and the company's Q3 financial/operating results, both of which are scheduled to be released on 26th October.

Note that in the long-term NSU is primarily a copper play, but in the short-term it is primarily a zinc play. The company benefits directly and immediately from gains in the zinc price, which is significant because in response to the bullish fundamentals discussed in TSI commentaries over the past year the zinc price just made a new 9-year high.

On a different matter, we exited (took profits on) half of our GLD October put options on Monday and will exit the remainder of this insurance position before the end of the week. There is no evidence yet that a multi-week price bottom is in place for gold, but we should be close (at least in terms of time). As previously advised, it's likely that the price bottom will coincide with the daily RSI(14) dropping to 30. It was 35.9 at the end of Monday's session.

Based on the deterioration of gold's true fundamentals and the non-supportive sentiment backdrop, at this stage we are expecting the gold price to rebound from an early-October low and then decline to below the October low. However, we'll take the evidence as it comes.

Stock Selection Update #80 - 18th September 2017

In the Weekly Update posted on Sunday we wrote that despite its attractive valuation we were thinking about removing Ramelius Resources (RMS.AX) from the TSI List. As the result of a deal announced a couple of hours ago in Australia, this is no longer the case.

RMS is buying the Edna May gold mine in Western Australia from Evolution Mining (EVN.AX). Edna May is a marginal operation with a fairly short (4 years, currently) mine life. It therefore isn't a high-quality asset, which is why EVN is selling. However, due to the low purchase price (an initial payment of A$40M plus up to A$50M of additional payments down the track) this is a very positive deal for RMS. It immediately boosts RMS's production rate from about 120K ounces/year to at least 200K ounces/year while leaving the company with net cash of about A$50M.

The stock market has reacted to the news with a yawn, so it doesn't seem that the deal will have a significant short-term effect on the stock price. However, it's likely to have a substantial positive effect on the stock price over the next 6-12 months IF gold performs well in A$ terms.

We will have more to say about this deal in the next Weekly Update. We just wanted to point out that it changes, in a positive way, our perception of RMS's intermediate-term risk/reward.

Alert #260, 28th August 2017

Monday's performances by gold and the gold-mining indices/ETFs are examples of what breakouts look like. If there's a genuine breakout you don't have to use a magnifying glass to see it.

For two reasons it would have been better if gold bullion and the miners had consolidated for another week or so before breaking out. First, the gold-mining sector had a short-term cycle low due in early-September. Second, if there had been another week or so of consolidation then the breakouts wouldn't have immediately resulted in 'overbought' readings for daily RSIs. As it is, the daily RSI(14) is now above 70 (meaning: in 'overbought' territory) for both the US$ gold price and the HUI.

Also worth mentioning is that international tensions are again on the rise thanks to North Korea launching a missile on Monday that traveled over Japan before plunging into the ocean. This implies that Trump will have to find some better words. "Fire and fury like the world has never seen" clearly wasn't aggressive enough.

The sudden return to centre-stage of North-Korea-related tensions adds some uncertainty to the short-term gold picture. Always keep in mind that the gold price NEVER sustains gains that are made in reaction to military conflict or the increasing fear of same.

With the gold market already short-term 'overbought' and likely to be distorted over the days ahead by the North Korea situation, there is obviously a risk that Monday's breakout will prove to be a false signal. However, the short-term bullish scenario should continue to be given the benefit of the doubt until/unless evidence of a false breakout emerges. For gold and the HUI we would now view daily closes below $1290 and 197, respectively, as evidence that the 28th August upside breakouts were false/misleading signals.

On a different but related matter, in the 7th August Weekly Update we introduced Orla Mining (OLA.V), an exploration-stage gold miner with projects in Panama and Mexico. At that time we wrote that OLA would be added to the TSI List if it traded at C$1.06 (it was trading in the C$1.20s at the time). It traded as low as C$1.05 on Monday 28th August and has therefore been added to the List at C$1.06.

We consider OLA to be a short-to-medium-term trading position with an expected holding period of up to 9 months.

For those looking for buying opportunities within the ranks of junior gold/silver miners, near current prices a few that stand out are (in random order):

- OLA.V (Monday's closing price: C$1.13)
- ALO (Monday's closing price: US$4.15)
- USAU (Monday's closing price: US$2.54)
- AAU (Monday's closing price: US$1.16)
- GRG.V (Monday's closing price: C$0.62)

Alert #259, 18th July 2017

There is very little happening in the major financial markets apart from the continuing decline in the Dollar Index (DX), but the fact that the DX's relentless weakness has not yet resulted in much movement in other markets, most notably gold and commodities, is interesting in itself. It indicates that what we are dealing with is not so much weakness in the US$ as genuine strength in the euro and some other currencies. This is evidenced by the euro-denominated gold price, which is below its December-2016 low and only slightly above its lowest level of the past 17 months.

What we have here is the markets in general and the currency market in particular discounting tighter monetary conditions outside the US. This probably means that the financial markets are getting well ahead of economic/monetary reality, although the markets are capable of ignoring economic/monetary reality for an inconveniently long time.

That being said, subtle signs of a shift in favour of traditional "inflation" plays such as commodity-related equities are continuing to emerge. It's too soon to draw any conclusions about the sustainability of the shift, but the most recent of these signs is an upward reversal in the uranium-mining sector. The latest upward reversal by this sector could be another in a long line of 'head fakes', especially given that there has not yet been a confirming reversal in the underlying commodity price. However, the short-term risk/reward in some of the beaten-down uranium-mining stocks is sufficiently attractive to justify some added exposure.

We'll further discuss the uranium opportunity in tomorrow's Interim Update, but in light of the recent price action we are immediately adding a trading position in Energy Fuels (UUUU, EFR.TO) to the TSI List. For record purposes we'll use the US trading symbol (UUUU) and Tuesday's closing price of US$1.72 as our entry level.

Before signing off it's worth mentioning that the fundamental backdrop, as measured by the GTFM, edged back into gold-bullish territory over the first two days of this week thanks to a decline in the 10-year TIPS yield. However, the gold-mining indices and ETFs remain comatose.

Alert #258, 9th November 2016

The bad news that Donald Trump has been elected President is more than offset by the good news that Hillary Clinton has not been elected President. If nothing else, this suggests that in the US there is still a limit to the amount of graft, corruption and lying that the political elite can get away with. Also, the policy prescriptions of Trump and Clinton are equally bad for the US economy, but the world is better off with Trump as the US President. This is because Clinton has demonstrated an eagerness to use the US military for empire-building and regime change, whereas Trump seems more inclined to look for peaceful solutions and to stay out of other countries' political business.

The comments in the above paragraph are, of course, just opinions. Of greater relevance, here are some additional opinions that deal with how the major financial markets will be affected by the Presidential election outcome.

First, Trump's victory won't affect the US stock market beyond the near-term. Looking out over the coming year, the stock market's main problem is its extremely high valuation. This problem has been neither worsened nor ameliorated by this week's events. Also, we think that the S&P500 (SPX) was set to trade 5%-10% below Tuesday's closing level by the end of this month regardless of the election result. The difference is that Trump's victory has paved the way for significant immediate downside, although at the time of writing it looks like the knee-jerk downward reaction will be less than most people (including us) expected.

Note that we intend to exit all of our bearish short-term stock-market speculations if the SPX drops to the low-2000s.

Second, beyond near-term gyrations the major financial market that will be most affected by the Trump victory is the T-Bond market, and it will be in a bearish way. This is because Trump has promised to boost infra-structure spending, leave spending on the military and the most-costly entitlement programs alone, AND reduce taxes. In other words, Trump has effectively promised to substantially increase the supply of US government debt. Furthermore, the fact that the Republican Party has a parliamentary majority means that he has a fighting chance of fulfilling this promise.

Third, Trump's victory is not important to the gold market -- again, beyond near-term gyrations -- except to the extent that it causes significant shifts in gold's true fundamentals. At this stage we don't expect the election to be the cause of such shifts, which means that our short-term and intermediate-term outlooks for gold are roughly the same now as they would be if Clinton had won. That being said, a Clinton victory could have created an opportunity to buy gold or gold-mining ETFs for a short-term trade.

Alert #257, 7th November 2016

The financial markets have interpreted Sunday's news that the FBI hasn't changed its position regarding Hillary Clinton's emails as having guaranteed a Clinton election victory. We don't see how the latest FBI statement could possibly change the opinions of enough voters to make a difference, but the news has trumped (no pun intended) all other considerations and it is obvious that the stock market has already embarked on a Clinton victory rally. This greatly reduces the potential for the market to rally if Clinton actually does win and increases the near-term downside risk.

Regardless of what happens over the coming 1-2 days, what will really matter is where the various markets/indices are trading at the end the week. For example, the Dow Transportation Average (TRAN), which broke out to the upside and made a new high for the year on Monday, needs to end the week above 8150 to confirm Monday's upside breakout. A failure to end the week above 8150 would generate a reliable bearish signal. For another example, the S&P500 Index, which moved back above the 2120 breakdown level on Monday, must end this week above 2120 to confirm that a short-term bottom was put in place last week.

We took profits on our USO (oil) put options and made a couple of small gold-stock purchases on Monday, but these trades weren't related to the US election. In fact, we have no intention at this time of making any short-term bets that hinge on the outcome of the election. We are, however, on the lookout for short-term trading opportunities created by the election-related price volatility. For example, further weakness in the gold-mining sector in reaction to a Clinton victory could create a good short-term buying opportunity in that sector.

Alert #256, 15th September 2016

Long-dated government bonds are in crash mode. This is more evident when looking at the 'safe haven' European government bonds than US Treasury bonds, but even in the US there has been a significant breakdown over the past couple of weeks. This is exactly what we've been anticipating, but unfortunately it has happened a little too late to rescue the bond-bearish September options in the TSI List.

The TSI List contains two TBT call options (TBT moves in the opposite direction to 20+ year T-Bonds) that we are treating as a single trade. Both options will expire at the close of trading on Friday 16th September and therefore need to be exited immediately.

Based on current prices, the $33 call options are at around break-even and the $35 call options have no value. Depending on what happens on Friday the $33 options could become a lot more valuable before they expire, but they could also lose all of their value in response to a small bounce in the bond market. Speculators could choose to roll the dice, but for TSI record purposes we are going to assume that the trade has been closed at current prices for an average loss across the two positions of about 50%.

Alert #255, 12th September 2016

In the latest Weekly Update we wrote that we weren't taking any action in response to last Friday's violations of short-term support levels in the US stock indices, but that we might add to our currently-small bearish option trade (QID call options) if the NASDAQ Composite rebounded to around 5200 sometime this week.

The NASDAQ has already rebounded to around 5200, which is the short-term support level that broke on Friday. This price area is now resistance. The S&P500 (SPX) did something similar, in that it broke below short-term support at 2150 on Friday and then rebounded to just above the breakdown level on Monday.

We re-emphasise that the probability of a US stock market crash is approximately zero. We also point out that there is still a realistic chance of the market making an October high this year as opposed to the October low that many pundits are forecasting. However, if you are interested in establishing a short-term bearish speculation in anticipation of a decline of up to 10% within the next few weeks (a realistic possibility), now is the time to do so. Now is the time to do so because bearish speculations are now cheap and because it would only take a small amount of strength from here to prove the speculation wrong.

The TSI Stocks List already contains a short-term bearish speculation in the form of a QID $40 October-2016 call option (QID moves in the opposite direction to the NASDAQ100 Trust at twice the pace), but this option is too far out of the money to be useful. It will almost certainly expire worthless on 21st October. To get some exposure to the market's short-term downside potential we are therefore adding a QID $27 October-2016 call option to the List, using US$0.56, which is the mid-point of Monday's closing bid-offer spread, as our entry price. This option is only slightly out of the money and would respond vigorously to a 5%-10% decline in the NASDAQ100.

For record purposes, we'll consider the two option positions as a single trade

An alternative to buying the October-2016 QID calls, which expire in a little less than 6 weeks and are therefore very risky (the October options will quickly lose almost all of their value if the market rallies from here), would be to buy January-2017 QID calls. A position in the January-2017 calls would cover you against a sharp decline over the next few weeks and could also work well if the market rallies to an October high and then declines into January of next year (similar to what happened following the major high of October-2007). The main problem with this alternative is that the QID January-2017 calls currently have very wide bid-offer spreads, meaning that they are illiquid. That's one reason we are staying with the October options for now. The other reason is that even if there is a rise to an October high, a sizable ensuing decline to a January low would only be a likely outcome if the rally to the high were accompanied by a meaningful deterioration in market internals.

Another alternative for a short-term bearish speculation would be to avoid options altogether and buy QID (or some other bear fund). This would provide a lot less 'bang for the buck' than the options mentioned above, but it could enable the loss on the trade to be limited to less than 10% in the case that the market rallies or trades sideways over the weeks ahead.

Stock Selection Update #79 - 1st August 2016

Resolute Mining (RSG.AX) is up sharply this morning in trading on the Australian stock market. The cause of the price surge is positive drilling results from the company's Syama project in Mali.

RSG still offers reasonable long-term value in absolute terms and good value relative to the stocks of most other 300K-oz/year gold producers, so it could make sense to maintain some exposure to the stock. However, the TSI Stocks List is not run like a portfolio and therefore doesn't reflect standard money-management techniques such as scaling in/out of positions. A stock is either 100% in the List or 100% out of the List.

With RSG up by about 650% since the start of this year and about 600% since our September-2015 entry, it is time to realise the gain. We are therefore removing RSG from the TSI List at the current price of A$1.89.

Stock Selection Update #78 - 5th July 2016

Further to recent comments in TSI reports, we are adding the stocks of two industrial-metal-mining companies to the TSI Stocks List. This email is a brief introduction to the stocks in question, with more detail to be provided in the coming Interim and Weekly Updates.

The first stock is Taseko Mines (TGB, TKO.TO), a junior miner that has current copper production of around 100M pounds/year from its 75% stake in the Gibraltar mine in British Columbia, Canada. It also owns some exploration/development-stage copper projects.

We traded TGB very successfully during 2003-2007, but have since ignored it because it didn't offer sufficient value and because we generally weren't interested in having leveraged exposure to copper. We are returning to it because it now offers reasonable -- albeit not exceptional -- value and because we are now intermediate-term bullish on copper.

TGB's management is mediocre and its balance sheet is not in great shape, but the company's survival is not in doubt and, as mentioned above, the valuation looks reasonable. Perhaps most importantly, TGB is a stock that speculators invariably bid up when they become more optimistic about copper.

We plan to talk more about TGB in this week's Interim Update.

The second stock is Solitario Exploration and Royalty (XPL, SLR.TO), an exploration-stage miner that owns 30% of the high-grade Bongara zinc project in northern Peru. Although it is a much smaller company and is not remotely close to being in production, XPL is less risky than TGB by virtue of its strong balance sheet and conservative management. At the same time, it doesn't provide anywhere near as much leverage as TGB to changes in metal prices.

Whereas TGB is sufficiently leveraged to metal prices and sufficiently liquid to be used as a trading vehicle, it is more appropriate to view XPL as a stock to be gradually accumulated with the aim of holding for at least a couple of years. This is because a) it is more thinly traded, b) the development of Bongara will probably not occur quickly, and c) Bongara is high-enough in grade and big-enough in size that it could be economically viable at a relatively low zinc price.

We plan to talk more about XPL in the next Weekly Update.

The most recent closing prices for Taseko and Solitario in the US were US$0.51 and US$0.59, respectively. These were the closing prices on Friday 1st July. On Monday 4th July the US markets were closed, but the stocks traded in Canada and ended the day at the equivalent of US$0.54 (for Taseko) and US$0.57 (for Solitario). These are the entry prices we'll use for TSI record purposes.

A bull market hasn't yet been signaled for the industrial metals, but based on gold's performance it's likely that the industrial metals will signal the beginning of at least a 1-2 year rally within the next few months. For copper, such a signal would be a weekly close above US$2.30.

Alert #254, 24th June 2016

The result of Britain's EU membership referendum was a surprising (to us, to the bookmakers and to the financial markets) and extremely welcome (to anyone who is for greater individual freedom and against the creation of superstates, but obviously not to David Cameron) victory for the "leave" side. Politically and economically, this is just one step in the right direction. This step doesn't immediately extricate the UK from the EU, but sets in motion a process that is expected to last at least two years. That being said, the UK's future looks a little brighter now than it did 24 hours ago.

With the exception of a small-scale long position in the Pound (which, as forewarned in this week's Interim Update, was exited when the Pound moved up to 1.50 on Thursday), we haven't been attempting to trade around the referendum outcome. However, the market reaction to the 'surprising' result could create some opportunities.

The actions we take will depend on the magnitudes of the price moves in the US markets later today, but this is what we are currently planning to do:

1) Start scaling into a bearish T-Bond speculation via TBT and/or TBT September call options -- ideally with the T-Bond trading in the 170s. This will be for our own account, but not for the TSI List. Depending on how the market closes on Friday we might add a TBT position to the TSI List via the Weekly Update.

2) Exit the July QID (leveraged NDX bear fund) call options due to the closeness of the expiry date, but retain the October QID calls. This is for both our own account and the TSI List.

Also worth mentioning:

1) We have just exited a long-term Yen-denominated currency deposit. We switched the deposit from Yen to USD after the Yen spiked up to around par, which, as discussed last week, is as far as it should go at this time.

2) We are interested in re-establishing a long position in the Pound, but, as noted in yesterday's Interim Update, we'll wait for the dust to settle before doing anything.

3) Central banks are bound to flood the financial system with 'liquidity' in response to the referendum result. This will add to the long-term damage that the idiots have already done, but will support prices in the short-term.

4) The weekly closes will be very interesting and important. That is, it will be very interesting to see if the huge knee-jerk reactions to the news can mostly be sustained until the end of the trading day and if important support/resistance levels are breached on a weekly closing basis.

5) The Pound, the US$, the Yen, gold, the T-Bond and the stock indices are not worth significantly more or less now than they were a day ago. What we are seeing is the combination of an emotional response to unexpected news and a frantic attempt by short-term traders to re-position.

Alert #253, 18th February 2016

Once the gold-mining indices become very stretched to the upside on a short-term basis there are daily price patterns that will usually give a timely signal of a short-term top. For example, if the HUI had managed two consecutive down-days by closing lower on Wednesday 17th Feb it would have greatly increased the probability that a short-term top was in place, but by managing a small up-day on Wednesday it indicated that there could be another quick rise to a new high for the year prior to a short-term top.

In situations such as this it's best to take the evidence and review the situation day by day. No short-term forecasting (that is, guessing) is necessary. For example, if the HUI simply closes higher on Friday it will open up the possibility of next week being similar to each of the past two weeks, with a sharp 1-2 day pullback early in the trading week followed by a quick move back to or above the year's high. Alternatively, a lower close on Friday followed by a second lower close next Monday would indicate that a short-term top was probably in place.

On a separate matter, for TSI record purposes we are going to exit the remaining Royal Gold (RGLD) Jan-2017 $40 call option position at Thursday's closing price of US$11.00. Based on our December entry at $4.90, the result was a profit of 125%. Traders who scaled into the options during the weeks following our original buy suggestion should have achieved a much higher profit result.

We won't be surprised if these options gain an additional $1-$2 prior to a short-term top in response to the RGLD stock price rising to near its 200-day MA at $47-$48, but we don't mind leaving the remaining upside potential for the next guy.

Alert #252, 16th February 2016

We advised in Sunday's report that by some measures, late last week the gold market and the gold-mining indices were almost as short-term 'overbought' as they ever get. A knowledgeable and objective observer will therefore not be surprised if it turns out that short-term price tops were put in place last week. A knowledgeable and objective observer will definitely not see a good reason to blame market manipulation if it turns out that short-term price tops were put in place last week.

However, despite the sharp pullbacks on Tuesday 16th February, short-term price tops have not yet been clearly signaled. As was the case last week, it is possible that Tuesday's sharp pullbacks in the gold-mining indices and ETFs will be followed by Wednesday reversals and new highs for the move by the end of the week.

Further to the above, the price action on Wednesday 17th February could provide us with a clear signal -- or at least a clearer signal than we currently have -- that short-term price tops were put in place last week. To generate such a signal, all it would take is a down-day for the HUI on Wednesday.

Alert #251, 8th February 2016

The SPX immediately dropped below important support in the low-1870s on Monday 8th February and fell almost as far as its 20th January low of 1812 (Monday's low was 1828) before rebounding. Despite the rebound it still ended the day with a 1.4% loss.

Different US stock indices are in different positions. For example, the SPX is below its August-2015 low and above its January-2016 low, whereas the NASDAQ Composite and NASDAQ100 indices have just closed below their January-2016 lows but haven't yet closed below their August-2015 lows. Furthermore, the Dow Transportation Average (TRAN), which was relatively weak and led to the downside from late-2014 through to 20th January of this year, is now showing relative strength. TRAN is well below its August-2015 low, but on Monday 8th February it was only down by 0.3% and never got near its 20th January low.

Our guess is that another multi-week bottom will be put in place this week, but Monday's reversal wasn't strong enough to suggest that a bottom is already in place. It's possible that the SPX will have to spike below its 20th January low to set the scene for something more than a 1-2 day rebound.

As always, the weekly closes will be a lot more important than the daily fluctuations and closes. The SPX still needs to achieve a weekly close below its August-2015 bottom to remove any remaining doubt that a bear market got underway last year.

Turning our attention to the main beneficiaries of increasing fear of equity bears and economic downturns, gold and gold-mining stocks extended their recent steep advances on Monday. A consequence is that everyone who has been holding and/or recommending gold-mining stocks suddenly looks like a genius, regardless of how well they actually understand what's happening.

The US$ gold price has now risen for 7 days in a row at an average of about $10/day. It got high enough to test resistance in the low-$1200s on Monday before easing back. The gold-mining indices have only risen for 4 days in a row, but with much greater percentage gains than gold bullion.

Once a short-term advance becomes as stretched as the current advances in gold and the gold-mining indices, the first down-day will often mark a multi-week top. The most likely alternative is that it takes two downward reversals to set the top, with the second reversal occurring at a slightly higher level.

In any case, what we know for sure is that the profit-taking opportunity has become even better during the early part of this week than it was late last week.

With regard to members of the TSI Stocks List, short-term selling opportunities are becoming more obvious and prevalent. The selling opportunities are mostly still the subjective type (refer to http://tsi-blog.com/2015/11/objective-and-subjective-selling-opportunities/), but even though the year has just begun there are two stocks that are already nearing our 12-month valuation-related price targets. We are referring to Evolution Mining (EVN.AX), which we think would be fully valued at around A$2.00/share, and Ramelius Resources (RMS.AX), which we think would be fully valued at around A$0.40/share. At the time of writing EVN is in the mid-A$1.80s and RMS is in the high-A$0.30s. Endeavour Mining (EDV.TO) has risen to test major resistance at C$10.00 and could now be a reasonable short-term selling candidate (we sold about 20% of our EDV position on Monday), even though it still offers very good relative and absolute value.

We have 'rung the register' several times on our gold-stock holdings over the past three trading days and have now done sufficient selling that we will be equally happy with a continued advance or a significant downward correction.

Alert #250, 4th February 2016

The HUI traded above important lateral resistance at 140 on Thursday, but ended the day slightly below this resistance. The 140 resistance level has therefore held for now. The XAU has lagged the HUI and hasn't yet traded above its 200-day MA, although it touched this MA on Thursday before pulling back a little.

This is a likely price area for the gold-mining indices to peak on at least a 2-4 week basis. Consequently, we have arrived at a short-term selling opportunity. It's possible that a weak US Employment Report on Friday will extend the rally and create an even better short-term selling opportunity, but a sustained move to significantly higher levels is unlikely at this time.

The main reason for this email is to note that Royal Gold (RGLD) clarified its exposure to the financial predicament of Thompson Creek Metals (TCM) on Thursday and in doing so went part of the way towards allaying the fears that have depressed its stock price. Of particular significance, RGLD's senior management emphasised that RGLD has a strong security position at TCM's Mount Milligan mine and that Mount Milligan should continue to operate regardless of TCM's financial situation.

Information on the TCM exposure combined with general strength in the gold-mining sector resulted in RGLD's stock price gaining 15% on Thursday. After trading at US$25 less than three weeks ago, it is now trading at around $36.

There are two RGLD $40 call-option positions in the TSI List. The expiry date of these options is January next year and RGLD's stock price will probably continue its recovery over the months ahead (with intervening corrections, of course), so there is no hurry to take profits. However, for risk-management reasons it could make sense to soon take some money off the table.

For TSI record purposes, the lower-cost option position, which was added to the List at $3.30 last month, will be exited if its price rises to $7.00 within the next four weeks. In order for the option to trade at $7 in the near future the stock will have to quickly rise to at least $39, which isn't the most likely near-term outcome but isn't out of the question.

Another RGLD buying opportunity will possibly occur after a multi-week correction.

Alert #249, 26th January 2016

As noted in the latest Weekly Update, the HUI's price action set up the possibility that the breach of important support on Tuesday 19th January was the sort of false breakout that can end a trend. Confirmation that a reliably-bullish false downside breakout had, indeed, occurred would come via two daily closes above 112.

We got the first daily close above 112 on Tuesday 26th January, which sets the stage for the HUI to either confirm the upward turn or reverse back down on Wednesday 27th January -- the day when the Fed is scheduled to issue its next policy statement. Nobody expects the Fed to change its interest rate target this month, but it's possible that some speculators bought gold futures and gold-mining stocks on Tuesday in anticipation of the Fed effectively ruling-out any rate hikes over the coming few months. This is a near-term risk for the gold market, because while the Fed is likely to mention the recent financial-market turbulence it is also likely to reiterate that its interest-rate decisions remain data-dependent.

The prices of most gold-mining stocks are at very depressed levels and a long way from creating decent short-term selling opportunities, but there are a few standout performers that are now approaching prices at which some selling could be appropriate The main reason for this email is to mention that either a pre-FOMC or a post-FOMC surge in the gold price could create short-term selling opportunities in Endeavour Mining (EDV.TO) and McEwen Mining (MUX).

EDV offers excellent value in both absolute terms and relative to most other 500K+ ounce/year gold producers, but it is now a little 'overbought' and is within about 15% of long-term resistance. Taking some money off the table could therefore make sense if the stock soon rises to the C$9.00-C$10.00 range. For its part, MUX is now a relatively expensive stock thanks to its recent strength.

For TSI record purposes, MUX will be exited (removed from the Stock Selections List) if it trades at US$1.23 this week. Also, there is a short-term EDV trading position in the TSI List that will be exited if the stock trades at C$9.50 this week. The long-term EDV position will remain.

Alert #248, 15th January 2016

There's panic in the air, which means that it's a reasonable time to be taking some profits on put options.

The plunge at the start of US trading, the close proximity of important support and the extent to which the market is oversold prompted us to take profits on about half of our stock-market put options shortly after the open today. We haven't decided yet whether we will retain the balance of our puts until Monday or make a complete exit today. The reason to retain some bearish exposure for one more day is the potential for a short-term trend-ending liquidation next Monday, but, on the other hand, we now have substantial profits to protect.

Alert #247, 15th December 2015

On Monday the gold-mining stocks were weak enough relative to gold to cause the HUI/gold ratio to break decisively below its 40-day MA. This removed the last piece of price-related evidence that a short-term trend reversal occurred in the gold-mining sector in mid-November.

The price action suggests that the HUI is heading for yet another test of support in the 102-105 range, but it also sets the stage for a post-FOMC rally. If the Fed surprises almost everyone (including us) and doesn't hike its targeted interest rate on Wednesday, then the ensuing rally in gold-related investments will probably be immediate, sharp, and no more than a few weeks in duration. If the Fed hikes as expected then the ensuing rally in gold-related investments will probably be less sharp, but more durable.

Like the situations with gold bullion and gold-mining stocks, at the end of last week it appeared as if the broad US stock market was readying for a post-FOMC rebound. However, the broad market has rebounded ahead of the meeting, which makes the market reaction to the coming rate-hike news less predictable. With buying having occurred in anticipation of the news, there is now a higher risk of a post-FOMC sell-off. That being said, the SPX is not close to being short-term 'overbought' and the second half of December is a seasonally strong period.

With one exception (mentioned below), we aren't making any short-term bets in anticipation of the FOMC news. Instead, we'll figure out if it's appropriate to take-on some new short-term positions after the flurry of market activity prompted firstly by the FOMC announcement and secondly by Janet Yellen's press-conference blather has subsided.

The one exception isn't necessarily a short-term position, but it could turn out to have a short duration depending on the price action. It is a position in Royal Gold (RGLD) call options.

We are adding the RGLD January-2017 US$40 call options to the TSI List. These options last traded (on Tuesday) at US$4.70 and ended Tuesday's session at a wide bid-offer spread of $4.30-$5.50. For record purposes we'll add them to the List at $4.90, which is the mid-point of the aforementioned spread.

These options are being added in anticipation of a rebound in RGLD's stock price from $35 to $50 during the first half of next year. We estimate that such a rebound in the stock price would push the option price up to around $13.

Alert #246, 7th December 2015

After Monday's sell-off the HUI/gold ratio is still above its 40-day MA, but gold failed to hold above $1080 and the HUI failed to remain above its 50-day MA. Consequently, the HUI wasn't able to confirm an upward reversal in its short-term trend.

For the short-term bullish case, the ideal situation would have been one more up-day in the gold-mining indices prior to the start of some 'corrective' activity. The reason is that in addition to ensuring consecutive closes above the HUI's 50-day MA, a gain on Monday would have extended the daily winning streak to three.

To further explain, we've noticed that for the gold-mining indices, daily streaks rarely extend beyond two during moves that are counter to the short-term trend and routinely extend to three or more during moves that are in line with the short-term trend. This means that daily winning streaks rarely extend beyond 2 during rebounds within short-term downward trends and that daily losing streaks rarely extend beyond 2 during pullbacks within short-term upward trends. Regardless of the HUI's position relative to its 50-day MA, even a 1-point rise on Monday would therefore have provided some additional evidence of an upward reversal in the short-term trend.

Monday's price action in the gold-mining sector wasn't decisively bearish; however, it was a missed opportunity to generate bullish evidence. It increases the risk that there will be yet another test of the multi-year low (102-105 for the HUI) prior to a sustained up-turn.

Alert #245, 1st December 2015

The Commitments of Traders (COT) report for Tuesday 24th November would normally have been published on Friday 27th November, but was delayed until Monday 30th November due to last week's public holiday in the US. With help from charts provided by Sharelynx.com and posted at http://tsi-blog.com/2015/12/commitments-of-traders-cot-update/, here's our assessment.

The first chart at the above-linked blog post shows gold's COT situation, which was already bullish prior to last week. It is now even more so. In fact, thanks to a further reduction in the total speculative net-long position gold's COT numbers are now as bullish as they have been at any time over the past 10 years. This doesn't guarantee a near-term price reversal to the upside, but it means that the COT situation is now a strong tail-wind.

Silver's COT situation, which is shown on the second chart, is not as clear-cut. After being extremely bearish a few weeks ago, it is now slightly better than neutral.

The COT situation does not yet constitute a significant tail-wind for the silver price, but, importantly, it is no longer an obstacle. Furthermore, regardless of its COT situation and other influences the silver market should rally if the gold market rallies.

Gold's true fundamentals remain mixed, at best, but the market is very 'oversold' and sentiment is now as constructive (for the short-term bullish case) as it gets. The stage is therefore set for a multi-week rally, which could begin immediately and should begin by mid-December. As noted in last week's Interim Update and again in the latest Weekly Update, a daily close above $1080 would be preliminary evidence of a short-term reversal to the upside.

Alert #244, 17th November 2015

The US$ gold price has now fallen on 14 of the past 15 and 21 of the past 24 trading days. As far as we know, it has never done this before. It is now testing its July low and is obviously oversold, although not quite as oversold as it was at the July low. The knee-jerk reaction to the Paris attacks has delayed the start of a 1-2 week rebound in the gold market, but hasn't changed our view that the next meaningful ($100+) gold rally probably won't get underway until next month.

Like gold, the HUI has dropped back to near its multi-year low, which in this case is the September low. It will probably trade below its September low prior to making a short-term bottom, but not far below.

Short-term traders should not do anything in anticipation of a short-term bottom in either the bullion market or the mining stocks. Instead, they should wait for evidence of a turn before buying. As was the case in late-September, the relevant evidence will emerge soon after a short-term bottom.

With regard to the immediate future, our primary focus is the US stock market. The SPX touched its 200-day MA and then reversed downward on Tuesday 17th November. If our short-term outlook is correct then Tuesday's touch of the 200-day MA should have marked the end of the brief rebound that got underway on Monday, with a decline to a new multi-week low set to happen before month-end. From a different angle, if the SPX closes above Tuesday's intra-day high (2067) over the days immediately ahead it would be evidence that our short-term outlook is wrong.

Alert #243, 16th November 2015

In the Weekly Update, we wrote:

"The COT [Commitments of Traders] data for 10th November will be interesting, because it will show what happened to speculative positioning in the gold market in reaction to the strong US employment numbers that were announced on 6th November. The COT data would normally have been published by the CFTC on Friday 13th November, but due to a federal holiday on 11th November the publishing date has been delayed to 16th November (we know, it doesn't make sense, but this is a government department we are dealing with). If it turns out that the change in speculative positioning indicated by the 10th November numbers is large enough to be important then we'll send out an email with our related comments on Monday-Tuesday."

The change in the speculative positioning in gold futures indicated by the 10th November COT numbers is illustrated by the first chart in the TSI Blog post at http://tsi-blog.com/2015/11/charts-of-interest-8/. The change in the data wasn't large enough to alter our expectation that the start of the next meaningful ($100+) gold rally is still at least a few weeks away (with mid-December continuing to be our best guess), but it is interesting nonetheless. It suggests that there was significant additional liquidation of speculative long positions in reaction to the strong US employment numbers on 6th November. Gold's COT situation is now bullish, but not decisively so.

The change in the speculative positioning in silver futures indicated by the 10th November COT numbers is illustrated by the second chart in the above-mentioned TSI Blog post. Silver's COT situation has improved, but remains bearish.

The gold price rallied early on Monday 16th November in reaction to Friday night's terrorist attacks in Paris, but quickly gave back its gain and ended the day with a small loss. This is normal price action.

It's a myth that gold benefits from military conflict and other large-scale acts of violence. So many people believe the myth that there is almost always a gain in the gold price in reaction to such news, but the gain is always given back. As a result, news of this type never creates a short-term buying opportunity, although it can create a short-term selling opportunity. A short-term selling opportunity would be created when the news came at a time when the gold market was 'overbought', leading to an overshoot to the upside. The gold market is currently 'oversold', so the news created neither a buying opportunity nor a selling opportunity.

Monday's news-driven upward spike has slightly complicated the near-term outlook. However, due to the US$ gold price having now declined for a record 20 out of the past 23 trading days, we continue to expect that a 1-2 week rebound will soon begin.

Alert #242, 29th October 2015

The HUI closed below 128 on Thursday 29th October and in doing so confirmed that a short-term top (a top that will hold for at least 2 months) was put in place in mid-October.

It seems that the HUI is not going to make it to our low-150s short-term target, although earlier this month both GDX and GDXJ made it to the bottoms of our upside target ranges ($17-$18 for GDX and $23.50-$24 for GDXJ). One day -- probably during the first half of next year -- a short-term gold-sector rally is going to handily exceed our expectations.

It is often the case that by the time the price falls far enough to conclusively signal a trend reversal from up to down, either it is too late to sell or the situation is far from optimal as far as selling is concerned. That's why it is important to start taking money off the table when a market has rallied strongly and hasn't yet begun to show signs of weakness. Over the years, at least half of our selling was done at times when we were confident that the price was going to continue rising.

At Thursday's close of 125 the HUI was already down by about 10% from Wednesday's intra-day high. There is support at 118-120 that will probably hold if tested over the next several days, and the 128-130 range that acted as support over the past two weeks will now act as resistance.

Our guess is that the next short-term sector-wide buying opportunity will arrive in December, but we'll take the evidence as it comes. Also worth mentioning is that some of our favourite stocks are already near support levels that could stop the declines. In particular, EDV.TO has strong support at C$0.64-$0.65 and PG.TO has strong support near C$2.40.

Finally, Newmont (NEM) and Barrick (ABX) rallied as expected on Thursday in reaction to the improved operational performances reported after Wednesday's close. However, the positive influence of these stocks was more than offset by a 10% plunge in the stock price of Goldcorp (GG), the world's largest gold miner by market cap, in reaction to the quarterly report published by this company prior to Thursday's open. As far as we can tell following a cursory look, GG's performance on the production, cost and cash-flow fronts was fine, but the market took umbrage at the large headline loss that stemmed from asset write-downs. In any case, GG's poorly-received quarterly report didn't conflict with our perception that the cost-reduction trend has resumed in the gold-mining industry.

Alert #241, 19th October 2015

Monday's pullbacks in gold and the gold-mining sector didn't change anything. As long as gold and the HUI don't close below US$1150 and 120, respectively, over the coming few days they will maintain the potential for rises to new 3-month highs prior to short-term tops.

Bear in mind, however, that although last week's high for the HUI was 10% below the level that we considered both a likely and a maximum short-term upside target, the two most important gold-stock ETFs reached the lower ends of the upside target ranges mentioned in recent TSI commentaries. Specifically, GDX reached the lower end of the $17-$18 range and GDXJ reached the lower end of the $23.50-$24.00 range. Also, GDXJ touched its 200-day MA before pulling back sharply over the past two trading days.

On a separate matter, it has been a while since we last highlighted Almaden Minerals (AAU) as a candidate for new buying. The reason is that we expect the company to top-up its treasury via an equity financing before year-end. We are still concerned that an equity financing will happen within the next three months, but this concern has been more than offset by good news announced by AAU after the close of trading on Monday. The good news is that the company has done a deal to purchase a second-hand -- but virtually unused -- mill for its Tuligtic project in Mexico. This deal is expected to cut about US$70M off the initial capex and will potentially make the project economically robust at a gold price of $1150-$1200.

We'll have more to say about this news in the Weekly Update. In the meantime, AAU is a good candidate for new buying up to US$0.60.

Alert #240, 12th October 2015

Some brief comments on the current market situation and the TSI Stocks List:

1) The US$ gold price tested lateral resistance at $1170 during the early part of the US trading session on Monday 12th October. Considering the importance of this resistance it's not surprising that the first attempt to break through was unsuccessful. The second attempt will probably happen within the next two weeks and will have a better chance of succeeding.

2) The gold-stock indices made new 2-month highs in the early-going on Monday. However, even though the gold price closed higher on the day, gold's reversal from resistance prompted a bout of selling in the gold-mining sector and the gold-stock indices ended the day with losses. Monday's reversal suggests that there will be some additional weakness before the rally resumes, but we expect that the rally will resume within a few days.

3) Traders should be on the lookout for short-term selling opportunities in gold-mining stocks. Some selling opportunities have emerged over the past couple of trading days (for example, KGC's rise to just below its 200-day MA in the US$2.30s and EVN.AX's rise to lateral resistance at A$1.50) and more will emerge over the next couple of weeks if the rally resumes later this week as currently expected.

4) In the latest Weekly Update we said that for TSI record purposes the position in GDX January-2016 US$18.00 call options would be exited if the calls traded at US$1.00 this month. The calls traded at this level shortly after the open on Monday and have therefore been exited. The profit was 203%.

Lastly, please note that this week's Interim Update will be published a day earlier than the normal schedule (it will go out on Wednesday instead of Thursday).

Alert #239, 6th October 2015

This email is not really necessary, as nothing unexpected or that requires urgent action has happened in the markets. However, we are taking the opportunity to make a few comments on the recent price action in the gold-mining sector.

1) In the latest Weekly Update we wrote that evidence had emerged of a multi-month price bottom for the HUI. As noted in a blog post yesterday, additional evidence of a multi-month bottom was generated on Monday when the HUI/gold ratio closed decisively above its 40-day MA for the first time since April.

2) Still more evidence was provided on Tuesday when the HUI rose for a third consecutive trading day. Tuesday's rise was important because when the gold-mining indices are experiencing counter-trend bounces within short-term downward trends, consecutive daily advances typically don't extend beyond two.

3) Having just provided clear evidence of a short-term trend reversal it will not be surprising if the HUI now experiences a 1-2 day pullback. In fact, a 1-2 day pullback would be a healthy development for the short-term bullish case as long as it retraced no more than half of the preceding 3-day advance.

4) The probability of a HUI pullback or some consolidation over the days immediately ahead is increased by the fact that both gold and silver reached short-term resistance on Tuesday. In gold's case the resistance is the top of a contracting range. In silver's case the resistance is the 200-day MA.

5) The junior gold-mining stocks have generally been lacklustre relative to the senior and mid-tier gold-mining stocks during the rally to date. Although this is a departure from what has tended to happen over the past three years, it is normal for the juniors to under-perform the seniors during the early stage of a new up-trend.

In this case we suspect that hedge funds are jumping into the largest and most liquid gold stocks, while the natural buyers of the juniors have been disappointed so many times over the past three years that they now view any significant strength as an opportunity to take some money off the table.

Alert #238, 30th September 2015

A few quick comments on the current market situation:

1. The US Stock Market

a) The S&P500 Index (SPX) has dropped back to near its August low and the Russell2000 Index has broken below its August low. If today's market follows the 2011 path there will now be a 2-3 day rebound followed by a 4-5 day plunge to a multi-month bottom, whereas if it follows the 1998 path the bottom will be put in place within the next three days.

b) Sentiment and comparisons with previous downturns continue to indicate that a multi-month bottom will be put in place within the next two weeks. However, while the bottom is probably close in terms of time, it might not be close in terms of points.

c) In terms of points, one of the two most likely possibilities is that there will be a successful test of the August low. In this case there could be an intra-day spike below the August low, but on a daily-closing basis the market has essentially bottomed already.

d) The second of the two most likely possibilities is that there will be a multi-day plunge to well below the August low. In this case the SPX could fall as far as 1700 before reaching a short-term bottom. This possibility encourages us to maintain some bearish speculations.

e) There will hopefully be an opportunity to take profits on bearish speculations in the midst of a sharp decline between now and the end of next week, but short-term bearish positions should also be exited if the market shows enough strength to suggest that the worst is over. A daily SPX close above 1953 would now be enough strength.

2. Gold and Gold Stocks

a) As it did during the first two days of last week, over the first two days of this week the US$ gold price pulled back to its 20-day MA. However, this week's pullback doesn't look as innocuous as last week's, because it involved a larger decline and a breach of lateral support.

b) The breach of support at $1140 has shifted gold's short-term price pattern from slightly bullish to neutral. A weekly close above $1180 is still needed to signal an intermediate-term reversal.

c) The HUI and the XAU have dropped back to near the bottoms of their short-term contracting ranges, having now reversed downward from their 50-day MAs three times over the past six weeks. New lows are likely for these indexes during the first half of October, but many individual gold stocks have already bottomed and are now a long way above their lows.

d) With or without preceding declines to new lows for the year, multi-month bottoms for the HUI and the XAU would be signaled by daily closes above their respective 50-day MAs.

That's all for now. Remember, there will be no Interim Update this week.

Alert #237, 22nd September 2015

These brief comments relate to the charts that have just been posted at http://tsi-blog.com/2015/09/charts-of-interest-7/.

1) In the latest Weekly Update we wrote that gold's 20-day MA should act as support during any near-term pullback/consolidation. This wasn't a forecast, but we wouldn't have written it if we didn't think there was a decent chance of a decline to the vicinity of the 20-day MA during the ensuing few days.

On Tuesday 22nd September the gold price traded as low as $1120.50 and ended the day at $1123.90. The 20-day MA is at $1123.80, so it is clearly acting as near-term support.

What gold has done over the first two days of this week currently looks like a 'pause for breath' within a short-term upward trend. If so, the rally should resume in the next day or so.

2) As has been the case on multiple occasions over the past 2 months, what appears to be a routine pullback in the gold market has been accompanied by something more serious in the gold-mining sector.

The HUI has again fallen quickly back to near its August low, indicating that its record-breaking cyclical bear market is not complete. As long as gold resumes its short-term upward trend on Wednesday-Thursday there should not be significant additional weakness in the HUI before it makes a new rebound attempt, but at this stage the price action suggests that the final bear-market low is not yet in place.

3) In parallel with gold pulling back to support at its 20-day MA, the Dollar Index has risen to resistance defined by its 50-day MA.

It won't surprise us if the Dollar Index declines/consolidates over the next few days, but it looks like a multi-month bottom was put in place on 24th August. In addition to the price action, this assessment is supported by the fact that the euro has not benefited from stock market weakness over the past three days.

4) In a blog post at around this time last week we drew a triangle around the SPX's recent price action and speculated that there would be an upside breakout from this triangle followed soon after by a downward reversal. We got the upside breakout and the downward reversal.

A test of the August low remains likely.

Alert #236, 8th September 2015

We've written that we purchased half of a new stock-market put-option position when the SPX was trading in the 1980s on 27th August and that our plan was to buy the other half if the SPX rose to the low-2000s within the ensuing 2-3 weeks. That remains our plan.

Although not as likely, we can't rule out the possibility that the 24th August low was the low for the year and that a rally back to the May-July highs is underway. In this week's Interim Update we'll discuss what the market would have to do over the weeks ahead to confirm that the bottom for the year was already in place.

The gold-mining indices and some of the senior gold-mining stocks can't seem to get out of their own way. We continue to anticipate a strong short-term rally in the gold-mining sector, but it's clear that the HUI needs to quickly put some distance between its current price (110) and the lows of the past several weeks (104-105) to avoid a spike to new lows.

Alert #235, 27th August 2015

The decline in the US stock market from its July peak to this week's low seems much worse than it was and generated a disproportionately large amount of fear, most likely because there has been almost no volatility over the past few years. Due to the unusually-low (by historical standards) volatility of the period from late-2012 through to mid-2015, the recent sharp decline came as much more of a shock than it should have.

To put things in perspective, this year's SPX decline from its July peak to its August low was significantly smaller in percentage terms than the July-August decline that happened in the bull-market correction of 2011. For details, refer to the monthly SPX chart that we just posted at http://tsi-blog.com/2015/08/charts-of-interest-6/.

There is no evidence yet that the overall decline is complete. In fact, there's a high probability that it is not complete. Regardless of whether we are dealing with a new bear market (most likely) or a bull-market correction similar to 2011 or 1998 (less likely, but not out of the question), the current rebound will probably be followed by a decline that tests or breaches this week's low.

As noted in yesterday's Interim Update, the historical record pointed to a rebound that retraced about half of the July-August decline. This implied a rebound to around 2000 for the SPX. Thanks to Thursday's surge, we are almost there.

Our plan was to establish a new stock-market put-option position following a rebound in the SPX to near 2000. Half of this position was purchased on Thursday when the SPX moved up to around 1980. The other half will be purchased if there's more strength in the early-going on Friday. Note that although we are using the SPX as our market proxy, we are speculating via QQQ put options. The QQQ puts that we exited on Monday were the January-2016 $90, but for this new speculation we are accumulating the $85 puts that expire on 18th December 2015.

Turning to the gold-mining sector, the solid gain on Thursday is a preliminary sign that a successful test of the early-August low has occurred. For details, refer to the HUI chart posted at the blog along with the SPX chart.

We expect a strong rally in the gold-mining sector over the weeks ahead, which is why our biggest option position at the moment is in GDX calls. Specifically, we have been averaging into GDX January-2016 $20 and $18 calls on weakness. The GDX Jan-2016 $20 call option is already in the TSI Stocks List (at roughly double the average entry price in our own account, because the TSI List is simply a list of ideas and doesn't incorporate any money management techniques). We will add the GDX January-2016 $18 call option to the List if it becomes available at US$0.40 within the coming three trading days (it closed at $0.45-$0.52 on Thursday).

Gold stocks such as EDV.TO, EVN.AX, MUX, PLG.TO and SBB.TO are good candidates for new buying near current prices, as are the main gold-stock ETFs (GDX and GDXJ). Unless you are a nimble and very short-term trader, we do NOT recommend the 3X leveraged funds such as JNUG and NUGT.

Alert #234, 25th August 2015

The HUI suffered its third solid down-day in a row on Tuesday. This negative three-day sequence negates the positive three-day sequence that happened during the week before last.

The HUI's three big down-days and Tuesday's close below the 20-day MA suggests that a test of the early-August low (104) will happen prior to a sustained upward reversal. We certainly didn't expect this, but it is not a game-changer with regard to either our short-term outlook or our intermediate-term outlook.

The chances of a sustained upward reversal before the end of this week would actually be improved if the sequence of down-days extended to at least 4. Alternatively, an immediate upward reversal would probably result in only a 1-2 day rebound and then a decline to test the early-August low on Monday or Tuesday of next week.

In yesterday's email we mentioned that during the 1998 flight from risk the gold-mining sector bottomed at the same time as the SPX made its initial low (31st August) and then rallied hard for several weeks. There are a lot of similarities between the overall financial-market situation in late-August 1998 and the current situation, some of which we'll discuss in this week's Interim Update.

Alert #233, 24th August 2015

We sent a very brief email shortly after the start of US trading on Monday 24th August to advise that we had exited all of our stock-market put options (we held QQQ January-2016 puts). From memory, this was the first time we've ever sent an email alert during the US trading day. We thought it was necessary because a) we had advised a day earlier in the Weekly Update that we would take profits on only 50% of our puts if there was significant additional downside this week (Monday's downside was most definitely significant) and b) regardless of what the future holds in store, the sort of profit-taking opportunity created by the dramatic price action shortly after the start of Monday's trading session should never be passed up.

Now that we can sit back and look at the overall financial-market situation in the cold light of a new day (it's a new day where we are), here is a summary of our observations and assessment:

1) The Yen would normally benefit from a general flight from risk, which it certainly did in a big way on Monday. However, the Dollar Index would also normally rise during such an environment, meaning that the US$ would normally be weak relative to the Yen and strong relative to the euro, which was certainly not the case on Monday. Instead, both the Yen and the euro were very strong on Monday and broke above important resistance levels, causing the Dollar Index to tank along with risk assets. This is explained by the fact that the speculative 'hot money' was still heavily short both the Yen and the euro going into this week.

2) Gold and T-Bonds are two traditional safe havens that would normally fare well during a general flight from risk, but neither was strong on Monday. T-Bonds ended the day with a small gain and gold ended the day with a small loss. We don't know why T-Bonds didn't do better, but gold's failure to rally on Monday can be explained by the fact that it began the week slightly 'overbought' and at resistance.

3) After initially holding up well, the gold-mining sector was clobbered. As noted in the Weekly Update: "Although weakness in the broad stock market is always supportive for the gold-mining sector over the long-term and can be supportive for the gold-mining sector in the short-term, during large single-day general-market declines it's not uncommon for gold stocks to be sold along with everything else in a rush to cash (and bullion)." Sold along with everything else in a rush to cash is what happened to most gold-mining stocks on Monday.

4) Our expectation has been for an S&P500 Index (SPX) decline of 10%-20% by the first half of October. At Monday's low the SPX was down by about 12% from its July high, so the minimum expected downside has already been achieved.

5) Stock market bulls will be expecting and hoping-for a traditional "turnaround Tuesday". They might get it and it's certainly possible that a 2-3 week bottom was put in place on Monday, but anything more than a 2-3 week bottom is unlikely at this time. At best, this week's low will probably be tested next month. At worst, a rebound from this week's low will be followed by another sizeable/tradable decline.

6) The sharp decline in gold-mining stocks is creating another opportunity to purchase short-term trading positions in gold-stock ETFs and call options, but a methodical scaling-in process is more appropriate than ever. It's worth mentioning that during the 1998 flight from risk the gold-mining sector bottomed at the same time as the SPX made its initial low (31st August) and then rallied hard for several weeks.

7) The Yen still has considerable short-term upside potential, but we suspect that a 1-2 week consolidation will soon begin.

Alert #232, 24th August 2015

A very brief note to advise that when the US stock market tanked at the open today we took profits on all of our put options, as opposed to the 50% that we had planned to sell. The profit was too great to resist.

We still have some option-related exposure to stock market weakness via Yen (FXY) call options. As expected, the Yen is benefiting from the equity plunge.

Alert #231, 20th July 2015

Alert #230, 19th June 2015

Alert #229, 15th April 2015

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