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How to Catch the Next Boom in Resource Stocks

By Brian Hunt, Editor in Chief, Stansberry Research
Friday, August 10, 2012

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.
Brian Hunt

Further Reading:

Back in May, Matt Badiali told Growth Stock Wire readers that there was more downside ahead for the Venture. But as he explained, that's a good thing.
"In the long run, this market is doing us a favor. It's wiping out two years of rising share prices," he writes. "When it's over, we're going to be able to buy the highest-quality stocks in the sector for 2009 prices." Read more here: We Are Nearing a Panic Buying Opportunity in Mining Stocks.

In The Daily Crux
Market Notes
The S&P 500 is at its highest level since May... up more than 7% in two months.  
Dividend-growing tech giant Intel continues a long-term uptrend... shares post a 34% gain over the past year, including dividends.  
Big home construction funds XHB and ITB jump to fresh multiyear highs... both soar 60%-plus over the past 12 months.
Online shopping stocks are quietly booming... Amazon and eBay are up 35%-plus so far in 2012.
Market Watch
Symbol Price
S&P 500 1402.80 +0.0% +19.6%
Oil (USO) 34.93 +0.2% +10.5%
Gold (GLD) 156.99 +0.3% -6.9%
Silver (SLV) 27.29 +0.3% -24.9%
U.S. Dollar 82.62 +0.3% +10.5%
Euro 1.23 -0.5% -14.4%
Volatility (^VIX) 15.28 -0.3% -56.4%
Gold Stocks (^HUI) 426.29 +1.3% -22.5%
10-Year Yield 1.69 +3.1% -22.5%

World ETFs
Symbol Price
USA (SPY) 140.61 +0.1% +22.2%
S. Africa (EZA) 67.66 +0.2% +12.2%
Singapore (EWS) 13.27 +0.0% +6.5%
S. Korea (EWY) 57.76 +1.7% +5.8%
Lat.America (ILF) 43.19 -0.1% +3.3%
Canada (EWC) 27.07 +0.8% -2.5%
Taiwan (EWT) 12.64 +1.4% -2.5%
China (FXI) 35.29 +0.1% -3.2%
Japan (EWJ) 9.22 +0.2% -5.8%
Israel (ISL) 12.06 +1.0% -8.1%
Russia (TRF) 14.53 -0.2% -16.9%
India (IFN) 21.12 +0.1% -19.0%

Sector ETFs
Symbol Price
Construction (PKB) 14.36 +0.7% +36.7%
Retail (PMR) 24.95 0.0% +34.0%
Consumer Svcs (IYC) 82.80 -0.2% +29.2%
Media (PBS) 15.72 +0.2% +27.5%
Health Care (IYH) 80.63 -0.1% +27.4%
Big Tech (QQQQ) 66.82 +0.3% +27.2%
Real Estate (IYR) 64.34 -0.3% +24.8%
Utilities (XLU) 37.43 +0.0% +23.7%
Software (PSJ) 26.92 +0.3% +23.7%
Biotech (PBE) 22.70 +0.2% +22.6%
Industrials (IYJ) 69.64 +0.1% +21.7%
Insurance (PIC) 16.25 +0.4% +19.2%
Financials (IYF) 56.08 -0.1% +18.0%
Defense (PPA) 19.59 +0.6% +17.6%
Telecom (IYZ) 24.04 +0.4% +17.4%
Water (PHO) 18.95 -0.2% +17.2%
Semis (PSI) 15.25 +0.5% +16.7%
Transportation (IYT) 90.16 -0.4% +11.4%
Basic Mat (IYM) 66.50 +0.7% +2.2%
Oil Service (OIH) 41.06 +1.1% +0.0%
Big Pharma (PPH) 39.65 0.0% +0.0%
Nanotech (PXN) 6.25 +1.3% -13.0%
Alt. Energy (PBW) 4.21 +1.0% -37.0%

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