© Nick Migliaccio
Locked In—or Locked Out?
Welcome back from the lunar cycle from hell—the “crazy moon”—which finally ends on July 29.
What a difference six months can make. We have travelled from all-time highs into a hellish correction, helped along by some decidedly unnatural acts.
So, are we locked in or locked out?
Markets often settle into trading ranges, bouncing between support on the downside and resistance on the upside. When this grief began, that appeared to be a reasonable assessment.
By February, however, it became clear that something else was happening. Margin increases, portfolio rebalancing, and other outside pressures were helping to drive the correction.
Small comfort, perhaps—but it brings us to the familiar investor’s dilemma.
Do you take your profits now and risk missing the next major run that so many commentators are predicting?
Or do you continue to hold and risk watching those profits disappear as prices move deeper into correction?
Those are the horns of the dilemma.
Revisiting the Scene of the Crime
Let us approach this like homicide detectives examining the scene of a crime.
An old piece of detective lore tells us that criminals often revisit the scene of the crime they committed.
Could the same idea apply to financial prices?
Before going further, remember that these prices are being quoted in fiat currency—which, in my opinion, has roughly the intrinsic value of toilet tissue.
And yes, that matters.
Over the past twelve months, many investors have—or should have—profits in precious metals and related sector stocks. Following the scorching run to all-time highs, it may be useful to identify exactly where the steady uptrend became a true barn burner.
Why is that important?
Because the correction from hell may eventually return to a similar price level—the place from which the final explosive rise began.
In other words, the market may return to the scene of the crime.
Setting the Trapline
I once ran a trapline. My sets stood as silent sentries at trail junctions, waiting to capture the quarry without requiring me to stand there watching every minute.
We may be able to use a similar approach when looking for profits.
Study the chart and identify the price level from which the strongest part of the run emerged. The correction may end somewhere near that point, returning to whence it came.
Once you have identified that level, you could consider placing a limit order slightly above the price where you believe the correction may stop.
For example, suppose you believe the bottom could be around $5. There may be nothing wrong with placing a limit order at $6 rather than trying to capture the exact bottom.
It has worked before.
You place the order—or you do not.
This can be treated as a fire-and-forget order, left open as Good Till Cancelled, or for thirty days, depending on the rules of your brokerage.
Should the order fail to fill, cancel it and reconsider whether you still wish to purchase the stock near that price.
There is nothing especially complex or sophisticated about this strategy. Your trapline simply sits ready while you get on with the rest of your life.
Plan B: Kamikaze Lemonade
What happens if the first plan does not work?
Inspired by the so-called “Divine Wind” pilots of the Second World War, I call the alternative the Kamikaze move.
During the long years of price manipulation and suppression in precious metals, I used this approach several times.
After a long and discouraging decline in metal prices, I looked for companies whose stocks appeared as though they belonged in the junkyard rather than on an exchange.
The companies continued to operate and make money, yet their stock prices rarely moved higher for very long.
I selected one or two of these wrecks, bought them near cyclical lows, held them through the misery, and took the profit when it eventually arrived.
It seemed crazy to buy such losers at the time—but the supposedly high-class stocks were not performing much better.
My present weighting is primarily in junior gold miners. Some are good, and some are bad. Before the correction, of course, they were all “great.”
Should my main stock fail to reach the price of my limit order, and should I decide to branch out, I am watching six junior silver and mining-related companies.
Over the past six months, they have fallen by an average of approximately 60% from their peaks. They operate in jurisdictions I consider acceptable, and they possess promising deposits, production potential, exploration prospects, or the possibility of becoming acquisition targets.
When the market gives you lemons, make lemonade.
This is my Kamikaze Lemonade approach.
The Watchlist
Find the date when the major rise began in the stock you are studying. Identify the price level and proceed according to your own judgment.
Funds committed to an open order may remain unavailable until the order is filled, cancelled, or expires. That is the primary disadvantage I see.
The advantage is that you may no longer need to agonize daily over the exact location of the market bottom. Your trapline is already set.
Should that strategy fail, you may choose to examine one of the devastated junior companies—many of them silver-focused—and deploy only the portion of your funds that you are genuinely prepared to risk.
Here is my current list. Yours may be entirely different:
- Aftermath Silver Ltd. — AAG.V
- Silver X Mining Corp. — AGX.V
- Silver One Resources Inc. — SVE.V
- Hercules Metals Corp. — BIG.V
- Borealis Mining Company Ltd. — BOGO.V
- Empress Royalty Corp. — EMPR.V
Each company passes my personal sniff test and, at the time of writing, has what I consider an acceptable—or better—chart.
Do your own research, set your own traps, and never risk funds you cannot afford to lose.
Important Disclaimer
The Denaliguide Letter and Bulletin is presented for educational and entertainment purposes only. Nothing contained in this publication should be considered personalized investment, legal, tax, or financial advice.
Readers are responsible for conducting their own due-diligence investigations before investing or giving money to any person or organization. Investing involves risk, and losses are an unavoidable possibility.
Denaliguide and/or its associates may hold long or short positions in any securities mentioned in this publication.
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