A 46% Rise in a DAY. Here’s How It Happened…
Monday, 15 March 2021
By Callum Newman
[4 min read]
- Truth be told, I have no idea
- The wisdom of two financial titans
- I keep my focus purely on the short term. So should you!
- Now, I’m not talking about day trading here
Callum Newman here. I’m the editor of Catalyst Trader.
This week I’m hosting an online trading event called ‘Flag Finder 2021’ — where I reveal my strategy designed to help my subscribers take profits from the market in the short term.
It’s free to attend…and you’ll learn something really valuable…that I’m sure will change your attitude and approach to trading stocks in the future.
Plus, you get a free trade recommendation just for signing up. Name, stock code, full rationale, buy limit, stop-loss — the works.
Today I’m going to give you a taste of what I do for my subscribers in the context of our current market.
Think back to this racy headline in your inbox on 24 February:
‘Sexy Bottoms Appear in the Stock Market Too’
That was me — Callum Newman — drawing your attention to the potential opportunity in gold stocks.
Now check out the following chart of gold miner Silver Lake Resources Ltd [ASX:SLR].
What do we see?
A recent 25% bounce in less than two weeks…
That’s quite a counter rally considering the strength of the previous downtrend in the stock.
Is this the ‘bottom’ of the gold market?
Truth be told, I have no idea
What I can tell you — as I did a couple of weeks ago — is that the odds of making money from gold stocks are much better now than they were 12 months ago.
Why is that?
They’re so much darn cheaper now…
Most gold stocks, at least a few weeks ago, were down 40–80% since the highs of last year.
The odd thing is the producers are still minting money!
The Aussie gold industry remains in excellent financial health.
The Aussie gold price remains around $2,200 an ounce.
That gives $600–800 margins for most gold producers. Some of them are gushing free cash flow at these levels.
Let me pick an example. Gold Road Resources Ltd [ASX:GOR] released its full-year results last week.
The company’s 50% stake in the Gruyere Gold Mine in WA delivered them $106 million in free cash flow for the year.
Now, I’m neither a balance sheet guy nor a gold bug.
I’m not here to wax lyrical about gold as a store of value, or an inflation hedge, or show you juicy dividends for your super fund.
I’m a trader!
What I want to see, all the time, is lots of potential upside and minimum downside risk.
I think this situation is presenting itself in the gold market right now.
Today’s Insider explains why…
The wisdom of two financial titans
Here’s a line from hedge fund guru Jim Rogers I’ve always liked:
‘I look down before I look up.’
Warren Buffett’s is also good…
‘Rule No 1: Don’t lose money.
‘Rule No 2: Don’t forget rule number one.’
Both these gents are highlighting how important it is to manage your risk in the market.
Why do I mention this?
Last year gold stocks reached high valuations that presumed the gold price would stay at record highs.
People were happy to pile in even though, from my perspective, the remaining upside was minimal and the downside was big if the gold price backtracked. Investors were projecting the gold party too far into the future.
I’d seen this rodeo before, back in 2011. I warned my subscribers away from gold stocks at the time.
Gold fell back in price. But the stocks have fared even worse.
I only highlight this to say how difficult it is to forecast ANYTHING in financial markets over the long term.
Here’s how I cope with this…
I keep my focus purely on the short term. So should you!
Almost the entire mantra from the financial industry is for you to invest for the long term.
The supposed ideal is emulating Buffett and buying Coke in 1983 (or whatever it was) and holding on through thick and thin.
Ideally — for the financial industry — you park your money in their fund and they collect fees every month off you.
Let me tell you about an enlightening conversation I had with a former bank trader Gary Norden.
He’s ‘retired’ now to run his own account and writes the odd book.
Gary told me that, as a bank trader, they would often take positions for 1–2 days, or occasionally for a few weeks.
That was on the trading desk where they were held to account via their profit and loss.
Meanwhile, the broking and research part of the investment bank would regularly put out their latest long-term analysis on stocks and sectors.
What did the bank traders do with this information?
Gary told me…
They ignored most of it!
That’s not because the research was bad, or done with an ulterior motive.
It’s just that the market — and the world — is too dynamic, too unpredictable, and risky to bet big over a long time frame.
It’s much more reasonable to reduce your time frame down.
Now, I’m not talking about day trading here
But I’m much more comfortable buying a stock with a view to selling it, ideally, within 1–3 months than I am forecasting what’s going to happen in two years.
Let me tell you from personal experience…
It’s MUCH easier to predict what’s highly likely to happen in three months compared to three years.
You also find out very quickly if your money is working for you or not, or could be better served elsewhere.
It’s also, in my experience, much less stressful.
There’s much less angst about what all the variables — the economy, interest rates, sentiment — are going to do when you focus on the next quarter or two.
You can’t control or predict these correctly constantly all the time anyway.
It’s much more realistic to identify a compelling short-term opportunity for a specific reason in a specific stock.
It’s also a lot more exciting.
There’s a thrill when you see your account go green quickly, and rapidly.
Here’s a trade I advised my subscribers to take back in September in a stock called BetMakers Technology Group Ltd [ASX:BET]…
That’s exactly the type of move I hunt for in Catalyst Trader. And while not all of our trades take off like this one, you can certainly see what’s on offer when they do.
Now, there’s a reason stocks rip up in the short term like BetMakers here, which I’ll share with you in more detail at this Thursday’s online event, ‘Flag Finder 2021’.
But let’s go back to the gold sector for a moment. I don’t presume to know where the price will be in a year.
But I know where it is right now.
And I know big gold companies have a lot of money to spend…and many smaller gold stocks are WAY cheaper than they were 12 months ago.
That tells me the gold market is primed for acquisitions. You can potentially make sizable gains in a day if a small gold stock becomes a takeover target.
We have perfect proof of this trend today too.
Evolution Mining Ltd [ASX:EVN] just announced it’s acquiring a Canadian gold company at a 46% premium to its closing price on the Toronto Stock Exchange.
I expect more deals like this in Australia.
This is a fertile and emerging space for traders like me and my subscribers.
As evidenced by the BetMakers trade I just showed you.
If you’d like to know why stocks like BetMakers do that, and my strategy for anticipating it, register for ‘Flag Finder 2021’ now…
Editor, Catalyst Trader
Editor’s note: FLAG FINDER 2021 — Free registration for this Fat Tail Media event ends soon! On Thursday, March 18, discover the strategy designed to detect potentially huge jumps in tiny stocks…before they happen. Join me as I reveal one of the most intuitive, most effective strategies to trade stocks on the Aussie market, for the chance to make short-term gains from quick ‘re-ratings’…find out more and secure your spot here.