The COTs and DSI Suggest a Tradable Low is Near
Investors are utterly irrational in their buying habits. Imagine for a moment if you will, an investor in a nice gold stock watches his shares drop 25%, does he buy or sell?
Well, in my experience, the average investor will sell based on nothing more than the fear of losing even more. That’s irrational as hell. If you have been watching the price of new Corvettes, you go down to your automobile dealer and find he is holding a 4th of July sale. He has marked down your perfect machine by 25%. Now if you are the average investor, the guy belonging to the 95% of losers, you say, “I don’t want to buy it now, the price has gone down. I want to wait until the price has gone up every day for three weeks. Then it’s safe to buy.”
Do you really wonder why 95% of resource investors lose money?
As I made clear in Nobody Knows Anything, there are a thousand reasons to sell an investment but only one reason to buy. If you buy any investment for any other reason than to make money, you are one of the lead chumps in the 95% club. If you wear a Save the Whales tee shirt to bed in your organic homemade sheets and wake up only to go hug a tree for an hour, you should only buy an investment if you think it’s going to go up. Neither the whales, the sheets nor the trees actually give a shit about your investments. Buy because you want to make money, not for any pseudo-social reasons.
But once you buy, at some point you need to sell. You may have died or gotten a divorce or the price of your Corvette has come within reason. People have to sell all the time. And if you actually understand human behavior, you can profit as a result.
The old adage of “Sell in May and go away” has some basis in truth. In the Northern Hemisphere people go on vacation during the summer. In June and July we almost always have a slow, dull, dropping market with tiny volume. It’s a wonderful time to pick up stocks in the bargain bin. The reason is simple. Because people always have to sell but they don’t necessarily have to buy, an order that would be tiny during other periods has an oversize impact in the summer. Just take a look at volume, for the resource stocks it is near dead. A $10,000 order to sell could easily move a stock down 20% and it happens all the time. Without ready buyers, a sale has far more impact. But when the market turns and it will shortly, a $10,000 purchase will move the stock up 25% to regain all that was lost.
One of the guys in the resource space who understands investors and shows a remarkable sense of timing is Adam Hamilton. We post him every Friday and have for years. He’s one of a tiny handful of commentators in the junior market who actually gives advice you can profit from. I love reading him and have learned a lot. A subscription to his service would more than pay for itself. Last Friday he had this to say.
The COT reports that came out on Friday the 22nd reflecting the Commitment of Traders as of the close on June 19th show large speculators in gold increasing their short positions by 23,000 contracts. Small speculators not only covered their long positions by selling over 1,000 contracts but adding an additional 1,649 shorts.
In silver large speculators closed over 5800 long positions and shorted an additional 3,000 contracts. Investors need to remember that it is the action of speculators caught off guard by a turn in markets that provide the horsepower to drive the price higher. Speculators not only always sell at bottoms and buy at tops, they love to panic.
A stock that I took a position in a little while ago that is on the bargain shelf just began to advertise. The company is named Northern Sphere Mining (NSM-C) and with a market cap today of about $1.5 million it seems to me they only have one direction to move.
The company has two former mines that they are working to put back into production. In Ontario NSM earned an 80% interest in the Scadding Gold project. Past results show gold grades as high as 12.9 g/t over 19 meters, 5.36 g/t over 15.78 meters and 3.9 g/t over 10 meters.
For the 2018 season in Ontario NSM plans on drilling for a compliant resource at Scadding while exploring for nickel and cobalt in potential Sudbury style mineralization in breccia.
Northern Sphere has a patented silver mine they call the Buckeye mine but a lack of funds to support production has put the project on hold until market conditions improve.
For now the primary focus of the company in Arizona will be the Gila Copper/Silver project optioned from True Claim. Currently NSM is working on an expanded copper porphyry surface sampling program. Prior assay show surface grades of up to 0.5% copper and ten ounce silver.
A famous Canadian hockey player once said, “Skate to where the puck is going to be, not where it has been.” Investors need to do the same. We are in a decline in the price of precious metals but both the COTs and the DSI are suggesting a tradable low is very near. Don’t get caught out at the airport when your ship finally arrives.
Northern Sphere is an advertiser and I am biased. I own shares. Do your own due diligence but buying when things are cheap and selling when they are expensive makes a load of sense and cents.
Northern Sphere Mining