The Subsequent U.S. Bull Runs Are Weaker And Weaker

The chart below compares volumes reported during the last three bull runs in the American stocks (represented by S&P 500):

The first bull run, indicated in green, was made at growing volume.

The second run, in yellow, was made at unchanged volume.

The last run, in pink, has been made at decreasing volume.

According to the technical analysis, any strong trend is supported by volume. The chart above shows that each bull run, following the first one, was weaker than the former one. The last, ongoing bull run, has been the weakest one.

It Seems Now It Is Time To Hold Silver

In the long-term it is sometimes a wise decision to buy gold and sometimes to exchange it for silver.
As a rule, during a bull market in precious metals silver outperforms gold. On the other hand, during a bear market in the PM sector gold outperforms silver.

The chart below documents the best long-term opportunities to initiate a position in gold or silver:

For example, buying silver in May 2003 and selling it in November 2006 would have meant a profit of 200%. Then, buying gold in November 2006 and selling it in November 2008 would have brought you a profit of 27% etc.

What the chart is saying now? It looks like it is time to have silver.

Fibonacci Numbers Say S&P 500 Made Its High In May 2015

For those who believe in Fibonacci numbers (I do not, but sometimes I check these numbers, just for fun) - please, have a look at the chart below:

The chart shows S&P 500 index, starting from 2007. In October 2007 the index hit its record at 1,577 points. Then a bear market in stocks started. The bottom was printed in March 2009 at 666 points.

The difference between the peak and the bottom is 1,577 minus 666 = 911 points.

According to Investopedia, the 161.8% level is regarded as the so-called Fibonacci extension. 161.8% of 911 points is equal to 1,474 points. Adding this number to the bottom of 666 makes 2,140 points. This is nearly exactly where S&P 500 hit its intra-day record: 2,134.72 on May 20, 2015.

Do you like it?

US Stock Market Is Poised To Go Down In The Short-Term

Last Friday S&P500 broke below its technical support. What is more - it made it on a very high volume. In most cases such an occurrence indicates that an important move is coming. Please, look at the chart below:

The question is whether this move will be up or down? To find some kind of an answer - look at another chart:

The chart shows net positions held by speculators in VIX. VIX measures the volatility of the stock market. Generally, VIX is adversely correlated with the index value - if index goes down, VIX goes up. And vice versa.
The chart shows that whenever speculators are net long-VIX, i.e. they bet on the index going down, a good buying opportunity is approaching. This was the case in October 2014, February 2015 and in September 2015. Currently speculators are still net short-VIX, which means that it is not time to buy stocks.

Summarizing - looking at those two charts, it seems that we will see the US stock market going down in the short-term.

Starbucks Is Moving Into High Gear

Starbucks (SBUX) is a killer. Each year this company delivers excellent results. What is more, it is not slowing down - please, look at the chart below:

Contrary to Adobe, Starbucks' higher share prices are following its cash margin percentage.

In other words, the company squeezes more and more cash from its business, which, together with higher sales (since 2003 Starbucks revenue has been growing at a rate of 13.8% a year,) creates an excellent mix for the company's shareholders.

Adobe - Does It Make Sense To Invest In This Company?

Adobe (ADBE) is a software company demonstrating a $47 billion market cap. Its main product, Creative Cloud plan, used to deliver big and fast-growing revenue. Generally all looks good but, in my opinion, for many years this company has been seriously deteriorating. Please, look at the chart below:

As the chart shows, since 2008 Adobe's cash margin percentage has been in a steady decline while the company's share prices have been in a furious upward trend.

Note: cash margin percentage is defined as cash flow from operations (excluding working capital issues) divided by revenue. If, for example, cash margin percentage stands at 35% it means that the company gets 35 cents in operating cash flow after realizing revenue of one dollar. 

As the chart shows, Adobe gets less and less cash from its sales. For example, in 2008 the company was getting 39 cents in operating cash flow from each dollar of sales. This year it gets only 25 cents.

According to the theory, the more cash a company generates the more it is worth. To increase its value, Adobe has to sell more and more.

Between 2003 and 2014 Adobe's revenue was growing at an annual rate of 11.16%. On the other hand, its cash margin percentage was decreasing at an annual rate of 3.4%. Therefore to sustain its current valuation the company must grow its revenue at an annual rate of 15.4%. Well, it is not a simple thing - since 2012 Adobe's annual revenue went down from $4.4 billion to $4.1 billion in 2014.
I see this company in black color...

My Precious Metals Portfolio

In my last article, published on Seeking Alpha, I have presented a model portfolio consisting of five mining companies, which, in my opinion, should deliver a positive absolute return.at the end of 2016.

This portfolio is constructed in the following way:

or:

As of December 16, 2015 the above presented portfolio is hypothetically valued at US$9,997.1.

From now on till the end of 2016 I will be presenting the most important developments related to my picks.

To be continued...

Three Charts Supporting A Thesis On An Incoming End Of The Bear Market In Gold

The downward trend in gold is no longer supported by traders. Yes, it looks that we are very close to the end of a medium-term bear market in precious metals.

In my opinion, these three charts below support my thesis.

The first chart shows net short positions (short positions less long positions) held by money managers  in gold futures (in other words: speculators). It is easy to notice that since 2013 these managers have been increasing their net short positions. Practically every time gold prices were printing new low, net short position was higher. However the last record low in the gold prices was not accompanied by higher net short position. Simply put, money managers are becoming less interested in betting against gold any more.

Another chart shows the current developments related to silver:

Similarly to gold, we may easily spot that all participants (not only money managers) taking part in silver speculation are currently less interested in this play - open interest does not support the last decrease in silver prices.


The last chart - US dollar:

As a rule, when the US dollar goes up then gold goes down. Well, in my opinion, this thesis is quite questionable but, well, let it be.

Looking at the chart above, we may spot that speculators are less interested in betting on the US dollar appreciation (declining open interest). Such a development supports gold.

Volume Pattern Is Not Supporting An S&P 500 Bullish Case

Generally, when a stock is in its upward trend, its volume follows the price during up-days. On the other hand, when a stock encounters a correction, its volume goes down. This is one of the rules, which defines an uptrend.

Therefore statistically, during an uptrend, volume printed in up-days should be higher than that reported in down-days. If it is not the case, a stock flashes red - something wrong is going on.

Please, look at the chart below:

This chart shows volumes printed by S&P 500, starting from September 2015. Except for October, volume during up-days (when the index closed higher than in the previous trading day) was lower than volume reported in down-days (when the index closed lower than in the previous trading day).

Well, it is not a situation featuring an upward trend. Quite the opposite, it looks like S&P 500 is sending a signal that it is topping or even it is in a correction / bear market mode.

Another chart presents S&P 500 in the medium-term, during its late bull market stage:

As the chart shows, between the beginning of 2013 and the end of 2014 the pattern was supporting a bullish thesis: volume was higher during up-days.
Then, since the beginning of 2015 the pattern has changed - volume has been higher during down-days (with a climax in the third quarter of 2015).

Summarizing - the volume pattern is not supporting a bullish case any more.

IMPACT Silver - In My Opinion, 3Q 2015 Results Were Really Good

Due to remarkable interest in my article on IMPACT Silver, below I am providing my comment on the company’s 3Q 2015 results.

Shortly speaking, these results were really good. Please, look at the table below:

Source: Simple Digressions and the company’s reports

Year to date the company was able to increase its sales. Surely, a favorable exchange rate between the Canadian dollar and the US dollar had a positive impact on the company’s sales but keep in mind that, in terms of sales prices per ton of ore milled, a favorable exchange rate was responsible for only an 8.4% increase in sales; the rest, 14.3%, was attributable to the sales growth (expressed in C$ per ton of ore milled).

What is more, year to date Silver IMPACT succeeded in cutting its costs from C$108.6 per ton of ore milled to C$94.4 per ton of ore milled. Due to that fact, the company reported lower loss than a year ago. Well, it was still a loss but what I may demand from a silver miner producing and selling its metal at today’s low prices?

Next thing, IMPACT is quickly approaching a “magical” point of equilibrium between sales and costs – please, look at the chart below:

Source: Simple Digression and the company’s reports

After years of incurring high costs, at least higher than sales, the company is very close to start delivering operating profits. I am very curious whether we are going to see the first profits in 4Q 2015 or later…

The main reason standing behind this positive development are higher feed grades reported at the company’s Guadalupe mill. Year to date IMPACT was milling its ore at the feed grade of 195 gram per ton, while last year it was only 152 gram per ton (in 3Q 2015 the feed grade was even higher: 214 gram per ton).

Note: due to the lack of current reserves/resources estimates, I am leaving a question, whether the company is high-grading, as open. Generally, epithermal vein systems are high grade deposits (grades of 150 – 1,000 gram per ton of ore) so, I believe that the risk of high-grading is relatively low – please, look at the graph below:

Source: the company’s presentation, slide 16

Next thing, the company is very close to meeting its annual production target of 1 million ounces of silver. Year to date IMPACT produced 716,319 ounces of silver. To meet its guidance, in the fourth quarter of 2015 the company has to produce around 284 thousand ounces of silver (a little bit above the 3Q 2015 production of 277 thousand ounces).

However, the most important thing is the fact that year to date IMPACT was able to generate positive cash flow from operations (C$110 thousand, working capital issues excluded). Cash is incredibly vital issue for the company – at the end of September 2015 it held cash of C$803 thousand, which is quite a low figure. Fortunately, not incredibly low. Year to date the company generated C$1,415 thousand in cash from operations (working capital issues included) and spent C$1,691 (investment spending). So IMPACT was cash deficient of C$276 thousand. If the company is able to keep tight cost/spending regime it should survive with only C$803 thousand on bank accounts. At least for some time.

Summary

I was positively surprised to see Silver IMPACT’s quite decent 3Q 2015 results. With silver prices around US$14 - 15 per ounce, the company, with a little help of the weaker Canadian dollar, was able to post only a small loss. What is more, IMPACT is very close to meet its 2015 production guidance. Summarizing, Mr. Shakespeare was wrong writing:

“Something is rotten in the state of Denmark”

Hamlet, Marcellus to Horatio

US Stock Market Internals Look Not As Good As The Market Itself

US equities hold firmly but technical internals are still deteriorating - please, look at the chart below:

The chart shows an S&P 500 index (green line) and a red line representing a difference between S&P 500 New highs and New lows. Normally, when any index goes up, more and more equities hit fresh records. And vice versa. However, as the chart shows, although the index goes up (green dotted line shows the trend), more and more equities hit new lows (red dotted line).

In my opinion, it is a clear sign that US equities are topping.

Gold Miners Hold Firmly

Everybody knows that gold, silver and precious metals related stocks are going down. Nevertheless, this time is a little bit different, at least for the time being.

Usually, when gold breaks its technical support, precious metals related shares are following it. Let us look at the chart below:

As the chart shows, this time is different. Gold broke its support in mid-November but GDX, GDXJ and XAU (gold and silver mining companies and juniors) did not follow it. All indices are still above their supports. It means they are stronger then their leading indicator (gold). In my opinion, it is a slightly bullish development for gold bugs.

This pattern is supported by another positive development - look at the chart below:

Precious metals stocks are not weaker than the broad market (represented by S&P 500). As my readers know, PM shares have been lagging behind S&P500 since 2011. This time they hold firmly.