SmallCapMedia.com - Gold - Oil - Diamond

Anyone with a long history of trading exploration stocks is well acquainted with the old saw that "no news is good news - except when it comes to exploration results". The drills are the sector's "truth machines" so when shareholders see drill results taking weeks and weeks to come back they start assuming the worst. Its a natural reaction and, frankly, probably often the correct one. Exploration doesn't successfully locate a mine most of the time, after all; that's why its not called "finding".

It is not easy to resist the temptation to hit the bid when results seem long overdue. If you're sitting on a good gain and the waiting is keeping you up at night, you should yield to temptation and sell enough to give you a low net cost that allows you to exit the position painlessly even in the event of poor results. We don't endorse anyone holding onto positions that bring that much discomfort. That said, we're well aware that this time around at least many of the companies people are waiting on do have legitimate hold-ups that they really can't do much about. Unfortunately, these delays came as shares from numerous placements done at much lower prices were freeing up. Traders sitting on large gains have had little compunction about selling first and asking questions later. This was compounded by the usual "sell in May and go away" mentality of many market watchers. The good news is that results are finally starting to flow in and for a number of the companies we follow the results have been good. See the updates below for details.

The exploration exchange…

In order to see just how strong the selling was for the juniors, we present one-year charts for gold and for the TSX-V index on the following page. The Venture Index has some obvious problems and should only be used with caution as a proxy for the exploration sector. The chief problem with this index is that it is "biased to failure". Companies that succeed in discovering a mineral resource and/or raising significant funds tend to move to the main TSX board and then to AMEX or NASDAQ. The Venture exchange is always going to contain more companies with projects that aren't working out because of this, which gives it a downward bias atypical of most stock exchange indices. Even given that bias however, the correlation between the TSX-V index and the gold price it clear from the two charts below. Both charts show strong gains through last fall; with the gains continuing on the Venture exchange even after gold saw its first price peak in January. The Index held most of its gains until April when the "China syndrome" drove the gold price from $430 back to $375 and the Venture Index fell out of bed.

Gold bottomed in May and renewed its up trend through the summer but the shares prices didn't follow. As the Venture chart clearly shows the doldrums set in as the gold price was bottoming and the market never really got it's feet under it again. (The same could be said of the producer indices, but that was partly due to costs rising with metal prices.)

We didn't present these charts to lay out a gloom and doom story; there have been plenty of others doing that. The real message is that (though it was barely perceptible for a while) the index did put in a bottom in 1460 range in July and August and it has moved up 6-7% since then. The important indicator on the chart is volume, since strong moves rarely sustain themselves without it. Volume is about half the levels it was in the spring. But like the index value, volume is again trending up, exceeding 30 million shares twice last week for the first time since June. There should be a lot more reporting in the next few weeks. This fall may not be the broad-brush barnburner of last autumn, but the stage is set for stronger price gains for those companies that are now showing significant progress - a stock pickers' market that will still reward success. That's enough to work with for now.

Editor's note: Since this was published a few days ago the Venture Index has added about another 5% to its gains, though volumes have lessened slightly. Most commodity prices have had a very good week and the companies talked about in the Dispatch continue to show gains as well. We would also note that our feelings about indices don't translate to the major markets. We told readers in April that we thought the major stock indices had seen their highs for the year and our feelings on that haven't changed. There might be a presidential rally, but it will have to overcome earnings forecasts that are again being lowered day by day.