After record months were reported in August, September turned out even better for the Australian speculative sector. My volumes started to get out of hand with a 350% increase from July, with the bulk of activity coming last month. Not since March 2000 I have been literally run of my feet, and forced to significantly increase my phone speed and rely on others for vital administrative aid. I have found it more difficult to write being on a permanent high, although in reality the trend was well established in May and I had already carried out the symbolic ceremony of throwing my own speculative textbook in the bin.
THE SPECULATORS HAVE WELL AND TRULY RETURNED
For those that experienced the madness of late 1999 and early 2000, the current activity whilst similar in nature has yet to really boil over into a full blown speculative bubble. Whilst the market capitalisations of the junior explorers have enjoyed 50%+ increases, we still have a number of companies capped well below $10m with some yet to smash their way through $5m. The money flow has moved nicely out of the majors and has supported the mid-caps nicely, whilst the Australian junior nickel sector has seen an average price increase in the vicinity of 220%.
The re-ratings on this occasion have been surprisingly sustainable, as with the return of the technical traders a number of stocks manage to find support at lower levels before setting new rolling 12-mth highs.
This aspect has made the first wave of selling like, "Shooting fish in a barrel minus the water". As the selling intensifies so to does the volume and with stocks closing near the intra-day highs, the buying has made welcome returns the following day to face another pink slip barrage.
THE DANCING PENGUINS
After watching the recent market activity, and the rate of stock being "regurgitated", I have given the current batch of daytraders the nickname of "The Penguins". This is based on the more experienced daytrader, feeding the young in similar fashion to how an Emperor Penguin nourishes its young. Whilst it is a welcome relief to have them back after a three and a half year absence the market is now in the dangerous stage where rising prices and volume can provide the perfect camouflage for "Fundamentals".
REGRET IS THE ENEMY
Only last week on of my core resource stocks reported a very exciting nickel hit that was a major contributor in igniting a number of other nickel plays regardless of the lower grades.
Broker, "Hi Ralph, that junior nickel stock you paid 20c for has just hit a massive intersection and is trading at $1.20 on large volume. I would suggest that this would be an excellent time to lock in some profits as the daytraders are swooping on this one".
Ralph, "It should go higher then shouldn't it? Let me go away and think about it before I do anything. Why would I even contemplate selling when there is that much pent up demand for it?
Ralph, "I see that stock is falling, quick sell me some down to 92c. I knew I should have sold it at $1.20."
Ralph," Now it is $1.05 and rising what have I done here? I am never able to pick the top, yet I seem to panic at the bottom"
In this example the investor has made a significant profit on a stock that was previously trading around 70c after spending months trapped between 31c-36c. Instead of focusing on the financial windfall poor old Ralph is going the right way to loosing the plot and ultimately joining the 97% that fail in the speculative market. During quiet markets a return of 30% is a windfall yet when you start making 400%-500% some drop the ball with the try line wide open.
HOW MUCH CHEAPER ON MONDAY?
With both gold and silver falling off a cliff last night in the US, our speculative market is about to be tested after weeks of excellent conditions.
I have already identified my "bounce targets" for trading on Monday, however I am somewhat concerned that the attack on gold and silver was so overdone that many others will be sharing the same mentality and the true bargains will be harder to find. Some stocks that are fundamentally overvalued will come in for some punishment by the weak hands, whilst I would expect some mild panic in stocks I still deem to be somewhat undervalued.
My strategy therefore is fairly simple, "We trade the weak hands rubbish, and accumulate the quality for the long haul, whilst ditching the middle ground in the short-term". This may/may not work however from the evidence provided it is the most appropriate course of action I can come up with.
Whilst it may not be a case of buying "Mambo shirts in winter", the opportunities thus far in this bull market have been limited in terms of benefiting from a good old dose of "fear", and ultimately greed which should provide the exit.
During the latest phase of the PM and speculative bull market the lack of pressure to the downside has resulted in passenger numbers blowing out to unsustainable levels. The activity on Friday night has resulted in further calls for gold's demise and a resumption of the equity bull market and a return to economic growth. True bull markets have a habit of tipping out passengers at various early stages, whilst bear markets are able to suck investors in looking for the ultimate bottom.
Those selling out on Monday as a result of panic may well find themselves re-entering the PM bull market at its final and most dangerous phase, although there is always the likelihood that their actions may be validated ever so briefly if follow through selling emerges on Monday night.
AUSTRALIAN STOCKS GETTING COVERAGE
At this stage of the cycle it is encouraging to see other writers covering Australian stocks both technically and fundamentally, whilst newspaper articles are finally starting to have an influence on trading activity. Whilst I am now fielding questions on a number of other stocks, there is little benefit in turning people away from them as a speculative punt, based on the fact many of them are going to run on the increased attention. I guess it is a case of standing in front of the door at a lingerie liquidation sale, or electing to go in the opposite direction during the "Running of the bulls".
EXPLORATION PORTFOLIO HIGHLIGHTS
Whilst I am expecting some damage to the numbers on Monday, the portfolio has performed fairly well in terms of price movements and exploration success. At the prevailing prices and taking into consideration the moves to date, my clients have been taking profits across a number of these stocks and are likely to continue to do so in the immediate-term. With that in mind I would treat the information below as being for "Illustration purposes only" and in no way a recommendation to buy any of the stocks listed below. My aim is to identify companies early herby eliminating some of the risk, and not to continually push those that have the capacity to provide a stomach churning ride.
We all have a different tolerance to risk and greed, and in a number of cases some of my clients have elected to rotate stock within the portfolio with the aim of capturing a greater percentage return from the allocated funds. With new opportunities emerging profits will also be realised where most appropriate.
ATX have moved in line with the junior nickel sector, after the acquisition of the Nepean nickel resource has shifted some of the focus away from their gold assets. Results from the first round of drilling at The Crown Pillar are eagerly awaited in the near-term.
HER are due to commence drilling at the Dairi Zinc-Lead-Silver deposit in Indonesia (Nth Sumatra) as part of their bankable study. The current resource of 6.4mt is running at 22% zinc equivalent. In this environment HER has drifted due to a lack of "sex appeal", however with the Corona issue now closed, Meluak could provide the excitement once work commences on the project providing that sentiment remains somewhat positive towards the sector.
MAR has been quiet on the exploration front, however the stock had a brief dash through 20c based on a presentation released to the ASX outlining their silver strategy. Exploration activity is likely to heat up towards the end of CY 2003.
PTS released some samples from the Euriowie Project near Broken Hill, which included rock-chips up to 26 g/t gold, 650 g/t silver, 37.7% copper and 34% lead. The market reacted well to the report sending the shares to a high of 17c before settling lower. Further exploration would appear to be justified.
GOLDEN CROSS (GCR) 9.2c 15/06/03 5.5c Percentage Gain/Loss: +67%
GCR announced positive results from their Sunny Corner project in NSW, and solid numbers from the Canbelego Gold Project with better results including 3m @ 8.65 g/t, 5m @ 4.98 g/t and 8m @ 5.26 g/t.
Golden Cross Resources have organised a free mining seminar in Sydney on the 14th October and Canberra on the 15th. I hope to meet some Gold-Eagle readers at the Sydney event. Further details are available from GCR's website. www.goldencross.com.au
MOUNT CONQUEROR (MCO) 5.6c 15/06/03 Percentage Gain/Loss:+40%
MCO released disappointing drilling results from a follow up program at Boorook, however the stock has still managed to attract reasonable support after a brief rally >8c. The company stated that some holes may have failed to reach their target, and further work is justified.
URL have been busy on the announcement front, with Pasminco selling their stake in the company and a major agreement signed with a large Chinese copper smelting company where they will invest between $1m-$2 at a 40% premium to the prevailing share price (calculated just prior to the recent move from 12c to 14.5c) and have signed an offtake option agreement on Universal's share of copper/copper concentrate produced from the Roseby Project in QLD. Further encouraging drilling results from Roseby were also released.
RMS managed to climb to 24c on the back of a 30% resource upgrade at the Black Cat gold deposit, before settling down in the 15c-18c range. Based on having fewer than 19m tradeable shares the lack of immediate sellers exacerbated the short-term rally.
Drilling results are anticipated from the Narndee platinum-nickel project. AXM has been one of the most volatile stocks in the portfolio with a range of 10c-19c on erratic volume.
Independence delivered the intersection the market had been craving, whilst my wife delivered my second child on the 4th July this year. (I do not normally believe in omens but will take this one for novelty value).
18m @ 10% nickel including 10.6m @ 12.8% nickel sent the stock through an Oxford after holding its ground around 70c after the nickel sector enjoyed a broader based re-rating. A further announcement two days later resulted in a mild panic (sub-economic in the announcement, along with fertile for nickel sulphide mineralisation), however the latest resource/reserve upgrade resumed the rally with the stock touching $1.25 before easing off late Friday.
6 October 2003
Tony Locantro
Disclaimer: I have direct/indirect holdings in the stocks listed/mentioned above. Clients have considerable holdings in each of the stocks and may change these holdings without notice. The information on each stock has been derived from ASX reports, company discussions and a site visit to Long Victor in 2002 (Independence Gold). The company websites have been provided where applicable for further research. Each of the stocks listed is to be considered as speculative, and may not be appropriate for individual investors. No buy recommendations have been provided on the listed stocks, and the opinions on each are those of the author only. It should also be noted that some of the stocks may have very low levels of liquidity and may result in significant percentage rises and falls. Please conduct further research and consult your financial advisor before making an investment/trading decision.
