Traders Cooperative

[basserdan]

Stars Aligned for Blockbuster Q4 in Resource Shares

By Michael J. DesLauriers
31 Oct 2007 at 08:59 PM GMT-04:00

TORONTO (ResourceInvestor.com) -- Recent shifts in the perception of global economic realities have led to spectacular appreciation in a number of commodities with gold and black gold standing out in particular and garnering significant attention. That having been said, despite strength across the board and particular interest and enthusiasm for specific plays/areas, we have yet to see an appropriate reflection of that commodity strength in the stocks. It is worth noting that the last few years have seen major gains in late Q4, and we believe that 2007 could well be the best yet.

With today’s rate cut the market is looking for an excuse to move higher once again and while the HUI, for example, has been printing new highs and gold stocks are once again seeing nice bids, a much more explosive situation is likely in the works for the quality names lower down the development food chain. In fact, investors south of the border with holdings in Canadian listed names have enjoyed an extra special boost thanks to the explosive loonie as the greenback plummets. It is not a terrible way to protect one’s capital while still gaining exposure to the numerous great names that aren’t inter-listed.

The reason for this is probably as simple as the need to take paper out of the hands of a huge base of shareholders that have been patiently waiting for share prices to recover, and many are most likely making the mistake of selling out for what they paid in the last run. Once these short-sighted and impatient investors are out of the way, and it will happen soon if strong volumes persist, then we believe a strong outbreak will lead to new 52-week and all-time highs in the majority of stories.

Also of interest are the uranium stocks which are finally ready to move higher, after a painful and vicious downturn following the euphoria in the first quarter of this year. After a major pullback in yellowcake prices and roughly four months without an uptick, the price of uranium is once again moving higher in the face of ongoing supply disruptions and construction issues. A number of analysts have once again turned bullish, and we expect the best of the bunch, many of which have been covered by your correspondent, to begin moving back towards old highs. The difference this time around though will likely be a separation of the wheat from the chaff, rather than a totally blind broad-based distribution of the money flow into the space.

Of the two best performing high-profile commodities of late, gold and oil, the oil stocks have significantly underperformed their commodity, relative to gold plays, and we believe are due to pick up the slack in a major way, in the near future. At any rate, the message is to start loading up on quality resource stories now and take the impending ride. The wind is once again at the back of resource bulls full force and whether one is looking for the short-term momentum return or positioning to benefit from the realities of long-term supply/demand fundamentals, this looks like a great time to get involved.

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