Has The VALE Finally Been Lifted On Commodities?

I hope you will forgive my attempt at a pun.

Brazilian multinational VALE, of course, is the 3rd largest mining company in the world. It is the largest producer of iron ore and the 2nd largest producer of nickel.

VALE traded as high as 44.15 in May 2008, plunged to 8.80 in November 2008, then rebounded to 37.25 in January 2011, and then collapsed (slowly) to this week's low at 4.13. Heck, VALE actually traded above $9/share on May 6, 2015, only 3 1/2 months ago. Given the fact that VALE is one of the lowest cost producers in almost everyone of its many commodity markets, and given the fact that VALE has managed its operations expertly through the carnage that litters the global mining landscape right now, I am more than a little surprised by the complete collapse in VALE's share price over the last several months.

However, VALE's stock price jumped 12.62% today (in a single day). At today's closing price of $5.00/share, VALE is now up 21% from its low set earlier this week.

In the interest of full disclosure, I bought my first share of VALE in early June at $6.10/share. I doubled down last Friday at $4.85/share, and then watched with horror as the stock printed 4.13 on Monday and then tested this low yesterday with a print at 4.20. Today's surge in VALE's stock price is exceptional, of course, but I am clearly still underwater on this trade. 

The reason for this column is not to share my sad story about a small part of my portfolio, but to reflect on the possibility that commodity prices in general may have finally found an important bottom after years of steady declines. Today's price action in VALE is significant, in my view, and I now believe that a major rebound in mining stocks is underway.

My preference for Gold and Silver mining stocks is well documented in this space, and I am still seriously over-weighted in this hated group, but VALE's price action today is more than just the result of a beaten down stock experiencing a dead cat bounce. VALE's price surge probably represents a major tone change in the entire mining sector with serious positive implications for commodities prices across the board!

Here are the latest daily and weekly charts for VALE. Please note the weekly chart buy signal now triggered by my computer trading system in VALE's stock price!

VALE Daily Chart

VALE Weekly 'Chart with Computer-generated Buy & Sell Signals

When Will We Know When Gold Has Bottomed & The US Dollar Has Topped?

Answer: Depends upon your definition of bottom and top.

For day traders, bottoms and tops are viewed and analyzed by the minute. For short-term investors, daily charts are scrutinized for clues to the next big swing. For intermediate-term investors, maybe the weekly charts are most important. And for longer term investors, perhaps the monthly charts are key.

I would like to think I am an intermediate-term investor for my clients. However, my trading track record points to a tendency to trade with shorter term horizons (using the Daily Charts).

So here is what I see for both the short term and intermediate term horizons:

1. Gold, Silver, and most commodity prices have now bottomed. US Steel (symbol X) posted a 12-year low at $15.68/share on July 27th, but it has since rebounded 31%! I see this price action in "Big X" as a significant leading indicator for commodity prices immediately ahead.
2. According to the latest CFTC weekly "Commitment Of Traders" (COT) report, Gold short positions currently held by Commercial Hedgers are now at the lowest since 2001. I view this sophisticated group as "smart money", and I see this latest COT report as additional strong evidence that a major turning point in Gold prices is here and now!

3. Precious metals mining shares are the single best buy on the planet right now.

4. The U.S. Dollar Index has topped, for at least the short term and probably the intermediate term.

5. China will succeed in its ongoing  massive intervention to support its financial markets and the overall Chinese economy (which fits nicely into my call that commodity prices have bottomed). Evidence of Government success is already being witnessed with the latest China customs figures which show that inbound cargoes of iron ore were 86.1 million metric tons in July from 74.96 million metric tons a month earlier and 82.52 million metric tons in the same month a year ago.

6. The U.S. Federal Reserve is NOT likely to raise interest rates more than two times over the next 12 months. While in my view "one and done" is the most likely scenario (1/4 point hike in the Fed Funds rate in December), Yellen & Company may feel compelled to chance a 2nd 1/4-point hike if the financial markets don't completely collapse after rate hike #1.

7. While I think the U.S. stock market has topped on both the short term and intermediate term horizons, I do NOT have any short sales on right now, so my conviction level with this call must not be very strong.

8. Precious metals mining shares are the single best buy on the planet right now. Oh, I already made that call in #3 above. In the interest of full disclosure, I am fully invested right now in a basket of gold and silver mining shares. While today was obviously a great day for my positions (my largest position was actually up 13% today), most of my precious metals mining stocks are still "under water" from their average purchase prices in each of my managed accounts.

Here is an interesting quote from Credit Suisse today:

"Optimism on the [U.S.] dollar is widespread, and our house view is for further dollar strength," Credit Suisse's Andrew Garthwaite said in a new note to clients. He noted that a recent Credit Suisse survey found that 70% of investor clients expected the dollar to continue appreciating over the next 12 months.

70% OF CREDIT SUISSE CLIENTS EXPECT CONTINUED STRENGTH IN THE DOLLAR! I read another survey recently that showed that Dollar bears may actually be less than 25% right now.

Of course, gold bugs have been totally discredited and overall sentiment in this hated asset class is probably the most bearish EVER! Hedge funds are actually SHORT on balance in the Comex gold futures for the FIRST time in history according to the latest Exchange report.

Here are three charts for your review:

1. U.S. Dollar Index (DXY) Daily Chart has now been updated with Friday's closing prices, August 7th. A daily chart sell signal has been triggered by my computer trading system at Friday's close, August 7th. The Greenback looks extremely vulnerable to a major correction here!!

2. Philadelphia Gold/Silver Stock Index Daily Chart (which shows that a computer buy signal was triggered today, Thursday, August 7th!)

3. Philadelphia Gold/Silver Stock Index Monthly Chart (which shows an 80% decline over the last five years since the top in December 2010)

U.S. Dollar Index (DXY) with 150-Day Moving Average Line and Computer-generated Buy & Sell Signals

Philadelphia Gold/Silver Stock Index Daily Chart with 200-day Moving Average Line

Philadelphia Gold/Silver Stock Index Monthly Chart with 200-Month Moving Average Line