How to Catch the Next Boom in Resource Stocks
After months of misery, natural resource investors are getting a bit of good news…
At least from a “trend perspective.”
Regular Growth Stock Wire readers know we keep close tabs on the natural resource sector. Because this sector regularly goes through huge booms and busts, it’s a good friend to the speculator. Get in the booms early, avoid (even short) the busts, and you can make huge returns.
For the last 18 months, it’s been all bust for natural resources. The sector enjoyed a huge run higher in late 2010/early 2011, but it has suffered a massive correction since then.
Investors are worried about global economic growth sputtering. Many people are terrified things will get worse. So they’ve dumped resource stocks… especially the small, “junior” resource stocks, which typically perform risky exploration work.
We like to gauge the price action in small “juniors” with the S&P/TSX Venture Index. It can be considered the “Dow Industrials of small resource stocks.” As you can see from the chart below, this index has plummeted since 2011. Many of the stocks in this index have fallen 75%-90%.
Now… take a look at the lower right-hand side of the chart. You’ll notice that the Venture has stopped falling. While this is no bullish buy signal, it is a small bit of positive price action.
The first step of beginning a new rally in resources is for the sector to stop falling… and then stabilize. It’s during these stabilization periods that contrarian investors can step in and buy beaten-down assets for bargain prices.
As we mentioned, the Venture hasn’t turned higher… There’s no bullish trend here yet. But keep an eye on this recent low in the 1,175 area. If small resources can hold this level and move higher, it will offer us a great entry point to potentially catch the next boom.