Stockbullz.com Weekly Stock Newsletter #18

July 14, 2006

 

"It's my opinion but it's your money!"

Dear Canadian Stock Investor,

It has been a very interesting week for me.

I missed out on the BVE superspike in volume and price on the supposed recommendation by the legendary James Dines.

As you may know, I became very interested in Bayswater during its previous volume spike a little over a week ago. I was very puzzled by this and thought something must be up. I did buy but I had to stick to taking a 25% slice in the subsequent period of weakness.

But on Wednesday there was yet another volume and price spike that made the first one look like peanuts. Of course I wasn't able to pocket the 56% gain in one day because I was watching from the sidelines.

Just a little stroke of bad timing but I won't start crying about it. There are going to be so many opportunities to make money in the future that I am not worried at all. I am constantly trying to find the next big mover before it starts to move.

However, to give me a little consolation, I have been right so far in my thoughts that BVE would subsequently begin to slide lower after the superspike. The share price is already down 17% from its peak on Wednesday.

My theory is that the professionals used the sheep buying to cash out their positions for huge gains. Almost 10 million shares traded hands so obviously there was a ton of selling from shareholders at that time.

Although I wouldn't buy yet, I will be definitely looking to buy a small testing position in it if the price stabilizes.

Strateco has kept up its flat price line this week so I am sticking with my theory that it is under solid accumulation right now. I don't know when it will break out but when it does it could be very profitable.

The news reels should be active over the coming months as the company spins off their gold properties and further drill results come in from their Matoush property. I find it very humorous that stock went down today just slightly on the release of good news:

In terms of exploration, this contact is open to the north and south along the Matoush Fault. Drilling resumed on July 12 and will now be ongoing without interruption. Furthermore, as Phase I of surface exploration on the some 330 claims covering approximately 180 km2, a radiometric helicopter survey representing about 1,200 lines/km will be conducted in late July 2006.

I only have a small position right now but if/when the stock starts to break out then I will pyramid (average up) until it stops going up (and undergoes distribution) and breaks its trend line. Then I will sell and perhaps wait for the next accumulation because it has already happened many times in the past for them.

I continue to hold my ARU long position that I established in the $18.00 range. The stock is moving extremely well right now making small several percent moves for consecutive days.

If you are not in ARU, I think the best thing to do is see if the price can cross $23.40 which is its all time high. If we pass that I think we look good to add several more dollars to the price. How high can we go I have no idea but always keep your stop loss.

I am using the 30 day moving average for my stop loss right now which stands at $19.08. This moves up every day and is a very nice trailing stop loss that is dynamic and will hopefully let my stay in ARU as long as it continues to go up but get me out near its top (whether that is an all time top or a temporary top before it breaks it again).

For a little bit of diversity and to try to profit from one of the biggest bubbles of all time, I have established a short position on US homebuilders. I have been reading horror stories about US housing for a while but I wasn't sure which way would be the best way to play this great downtrend.

 

I finally found a perfect instrument: iShares Dow Jones US Home Construction (ITB). This is an index fund for the US home building industry. While I could just short one or several homebuilders I am thinking why not just short them all in one easy index fund? I am quite sure that at least one large home builder will go bankrupt but I don't know which one. By shorting the whole index I keep my costs down and my research time down also. I just need to check one chart everyday to make sure the trend is down and that the index is still below my latest stop. By the way, here are the largest holdings of this index fund:

 6.94% Centex Corp.

6.84% Pulte Homes, Inc.

6.64% Lennar Corp.-Class A

6.42% DR Horton, Inc.

6.17%  Toll Brothers, Inc.

5.63% MDC Holdings, Inc.

5.55%  KB Home

As a bonus, I can also get some extra profit if the Canadian Dollar continues to strengthen against the US dollar.

So if you're angry you lost money during the Tech Bubble, I think you should be investing like I am right now: Long Canadian Mining Stocks and Short US Homebuilders for the perfect long/short combination.

And if you want a taste of what the US housing market is like right now read these two favorite blogs of mine: http://globaleconomicanalysis.blogspot.com/ and http://housingpanic.blogspot.com/

That's about it for this week. Thank you for taking the time to read this and I wish you luck in your investing decisions,

Mike

Disclaimer: This letter is merely someone's opinion. It should not be taken as investment advice. Through viewing this publication or accessing our site, you agree to hold Stockbullz.com, its operators, owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. It's your money, so you are ultimately responsible for any gains/losses you may incur. Do your own due diligence! Writer may own positions in some of the mentioned stocks.