The trend is your friend, and right now the trend with the Venture Exchange is on a roll so this is a friend you need to embrace immediately if you haven’t already. A lot of money is going to be made in this incredibly bullish speculative market over the coming few months which is something we have been consistently stating for some time now. We’re anticipating a 30-50% upside move by the end of April. Many of the best stocks will double or triple. Some will jump 10-fold or more. At some point the CDNX will experience a sharp, painful but likely short correction in the magnitude of 20-30%, but that’s not likely to occur until it reaches our target zone between 1,950 and 2,300. And that would be a correction to buy into, in all likelihood, for another leg up. The time for caution is when the CDNX hits 2,000. The time for boldness and aggressiveness is now.
We are making this prediction for a number of reasons.
The action we saw in December with the CDNX was truly remarkable. The Venture Exchange, which has proven to be an incredibly accurate leading indicator, showed amazing resilience as the price of gold dropped by $150 an ounce. Gold fell some 12% but the CDNX held its ground and roared to a new 52-week high of 1,521 to finish the year. Quite simply, it’s in a parabolic uptrend that refuses to break down. What this tells us is that gold and silver and commodity prices in general are headed significantly higher in 2010. The CDNX gave advance warning in July, 2008, of a crash in commodity prices. It’s now telling us we’re in another rip-roaring commodities bull market and inflation, not deflation, is on the horizon (actually, we believe the 2008 crash was merely an interruption in an on-going commodities super-cycle, a theory put forward very convincingly by Frank Holmes). We expect to see continued expansion of the money supply and more fiscal stimulus in most countries in 2010. The Democrats in the United States will continue to spend like drunken sailors to give as much oxygen to the economy as possible, especially with congressional elections coming up in November. At some point down the road, maybe not for a year or two, government and Central Bank actions are going to produce a host of problems. We’ll see higher interest rates and new concerns over debt at all levels – personal, corporate and government. But for now, the runway is clear for the CDNX to take off to heights not seen since 2008.
History open repeats itself, and the CDNX chart at the moment is eerily reminiscent of the 2002-2004 period. From late 2002 to mid-February, 2004, the Venture Exchange ran from 900 to 1,935. A 25% correction set in, which proved to be a buying opportunity. The bull market then resumed its course, more than doubling over the next two years from the 2004 low of 1,450 to the 2006 high of 3,300.
The CDNX was up 91% in 2009. The move was consistent and gradual, however, with a couple of minor 10% corrections (March and July). Typically, a market like this has not topped out until you see a near-vertical spike that’s driven by greed as well as a lot of inexperienced investors who get caught up in the frenzied action. We saw the reverse of this in the fall of 2008 with a downward spike driven by fear and a lot of inexperienced investors who panicked and threw stocks overboard. In short, we are entering a period very opposite of the one we experienced in the summer and fall of 2008.
We’re predicting, therefore, a near-vertical spike in the CDNX which should take it to at least 1,950 where this is some resistance, and more likely the 2,300 area where there is major resistance, before a significant correction sets in. The 2,300 level held on four separate occasions during significant pullbacks through 2006 and 2007. Once 2,300 was breached in July, 2008, it was like falling over a cliff. The game was over and the CDNX went on a precipitous and scary decline all the way down to just below 700.
We expect a powerful move in the CDNX this month in conjunction with a renewed advance in the price of gold which has found very strong support just below $1,100. It’s very interesting to note that the TSX Gold Index is at an oversold level, based on Stochastics, not seen since the crash of 2008. This is clearly a “screaming buy” opportunity in gold stocks across the board. Given how oversold the TSX Gold Index is at 334, we can expect it will break out to new all-time highs (400 or better) in the coming months, as gold and silver push higher, and that will add further fuel to the speculative junior market which will start to look a lot like the dot.com boom we witnessed a decade ago.
