Tuesday, March 23, 2010
Are the Steels, Metals & Miners Sounding an Alarm?
It is 6:09 AM. Grab a cup of coffee and let's see if we can figure out what the heck is going on with our favorite stocks. The Eureka Miner's Grubstake Portfolio (what's this?) tracks six miners and two steel-makers that have a direct or indirect impact on Eureka County. It also holds gold and silver Exchange Traded Funds (ETF) that track the price performance of these two precious metals. Lately all ten of these stocks have trended down as the broader markets trend higher setting new 52-wk highs. This is not a happy, pardner.
A good example is the S&P 500 which has been moving up rather dramatically since February 8 with a gain of 10.3%. Our stocks followed this move up then one by one started trending down while the S&P continued up. Here is a comparison of gold and silver's recent highs to their closing price yesterday:
Gold (GLD) 3/16 closing high $110.4, 3/22 $107.75 down 2.4%
Silver (SLV) 3/18 closing high $17.08, 3/22 $16.6 down 2.8%
Freeport-McMoRan (FCX), a bellwether mining stock, is often considered a "copper ETF" by investors. It started to de-correlate from the S&P about the same time as the precious metals:
Freeport-McMoRan (FCX) 3/16 closing high $82.19, 3/22 $79.8 down 2.9%
The gold miners are mixed with respect to when they started their descent but all are down from their most recent high:
Barrick (ABX) 3/17 closing high $40.16, 3/22 $39.41 down 1.9%
Newmont (NEM) 3/3 closing high $51.94, 3/22 $51.40 down 1.0%
US Gold (UXG) 3/9 closing high $2.94, 3/22 $2.78 down 5.0%
Our moly miners got a memorable bounce with the announcement that General Moly (GMO) is expected to receive full funding for the Mt. Hope project on March 5th. They too have drifted down ever since:
Thompson Creek (TC) 3/5 closing high $14.41, 3/22 $13.38 down 7.1%
General Moly (GMo) 3/5 closing high $3.99, 3/22 $3.35 down 16.0%
By comparison the S&P 500 is up 2.3% (by yesterday's close) from the 3/5 reversal for the moly miners.
Finally our favorite steelmakers have fared no better:
ArcelorMittal (MT) 3/17 closing high $43.61, 3/22 $42.23 down 3.2%
POSCO (PKX) 3/10 closing high $124.96, 3/22 $117.5 down 6.0%
So what Colonel? What's a few percent in this topsy-turvy marketplace? It's not the percentage change (which is fairly modest in most cases) that worries me; it is when our whole pack starts to run in the opposite direction from the broader markets that I become cautious. There are at least three possibilities:
1) This reversal is a typical "rotation" by investors from so-called "high beta risky assets" into better performing sectors (e.g., finance and technology)
2) Our favorites are just taking a pause for a new catalyst, a new reason to bounce higher and catch up with the herd. Some good news about China's growth or better news about the European sovereign debt issues might do the trick.
3) The steel-makers, metals & miners are warning us about something up ahead. Have the broader markets gone too far? Is there an overdue correction ahead?
What does the Colonel think? I'll take #1 or #2 over #3 any day, buckaroos. The only scary thing is #3 may be the correct answer. Dennis Gartman, the Commodity King, said on CNBC Business News yesterday that he believed the Greece debt situation was much more serious than most folks are treating it. Gartman has also said in the past that base metals (taken collectively) have a PhD in economics. Is their recent lackluster March performance together with the miners and steel-maker's stumble sounding an alarm? Stay tuned. Fortunately, the Eureka Miner's Grubstake is beating the S&P this morning.
Enough "what-if" talk, let's walk the walk:
4-WD is OFF - the VIX or "fear index" is below 25, improving broader markets are expected; metals & miners are on a smoother road (for now) with FCX above $74 (what is this?)
The YELLOW light is switched back on our fuel gauge with oil above $80
An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is down $0.25 in early trading to $81.03 (April contract, most active); Gold is down $1.9 to $1097.6 (April contract, most active); Silver is down $0.095 to $16.840 (May contract); Copper is up $0.0015 to $3.3820 (May contract); Western Molybdenum Oxide sits at $16.25, LME 3-month & 15-month seller's contracts are up at $17.69
The DOW is up 21.92 points to 10807.81; the S&P 500 is down 0.20 to 1165.61. The miners are mixed today:
Barrick (ABX) $39.13 down 0.71%
Newmont (NEM) $51.3 down 0.07%
US Gold UXG) $2.75 down 1.08%
General Moly (Eureka Moly, LLC) (GMO) $3.42 up 2.09%
Thompson Creek (TC) $13.56 down 1.35%
Freeport-McMoRan (FCX) $79.71 down 0.11% (a bellwether mining stock spanning gold, copper & molybdenum)
The Steels are mixed, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $42.48 down 0.59% - global steel producer
POSCO (PKX) $116.39 down 0.94% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.59% to $1,342,145.04(what's this?).
Headline photograph by Mariana Titus